The following
abbreviations and acronyms are used throughout this explanatory
memorandum.

Abbreviation

Definition

Administrator

Carbon Credits Administrator

Australian carbon credit units
(ACCUs)

A
unit issued under clause 138 of the bill. May be either a
Kyoto Australian carbon credit unit or a non-Kyoto Australian
carbon credit unit, depending whether the sequestration or
emissions avoidance meets Australia’s commitments under the
Kyoto Rules.

An
assigned amount unit, a certified emission reduction, an emission
reduction unit, a removal unit or a prescribed unit issued in
accordance with the Kyoto rules

Kyoto
rules

This
term is defined in clause 4 of the Registry bill. In brief, it
includes the Kyoto Protocol, decisions of the Meeting of the Kyoto
Parties, certain standards adopted by such a meeting and prescribed
instruments

NCOS

National Carbon Offset
Standard

NGGI

National Greenhouse Gas
Inventory

Non-Kyoto international emissions
units

A
prescribed unit issued in accordance with an international
agreement (other than the Kyoto Protocol) or a prescribed unit
issued outside Australia under a law of a foreign
country

Objectives of the Carbon Farming
Initiative

The Carbon Credits
(Carbon Farming Initiative) Bill 2011 fulfils the Australian
Government’s commitment to develop legislation to give
farmers, forest growers and landholders access to domestic
voluntary and international carbon markets. This will begin to
unlock the abatement opportunities in the land sector which
currently makes up 23 percent of Australia’s
emissions.

This commitment is
reflected in the objects of the bill.

The first
objective in clause 3(2) is to help Australia meet its
international obligations, under the United Nations Convention on
Climate Change and the Kyoto Protocol, to reduce its emissions of
greenhouse gases.

The second is to
create incentives for people to undertake land sector abatement
projects. The ability to generate saleable carbon credits provides
an investment incentive, thereby helping to channel carbon finance
into land sector abatement.

A further
objective is to achieve carbon abatement in a manner that is
consistent with the protection of Australia’s natural
environment and improves resilience to the impacts of climate
change. This recognises the important contribution that this scheme
can make towards environmental objectives such as improving water
quality, reducing salinity and erosion, protecting and promoting
biodiversity, regenerating landscapes and improving the
productivity of agricultural soils.

Climate Change and Australia’s mitigation
policy

Scientific
evidence confirms that human activities, such as burning fossil
fuels (coal, oil and natural gas), agriculture and land clearing,
have increased the concentration of greenhouse gases (such as
carbon dioxide, methane and nitrous oxide) in the atmosphere. As a
consequence, the earth’s average temperature is rising and
weather patterns are changing. This is affecting rainfall patterns,
water availability, sea levels, storm activity, droughts and
bushfire frequency, putting at risk Australian coastal communities,
health outcomes, agriculture, tourism, heritage and biodiversity
for current and future generations [1] .

Unmitigated
climate change threatens to challenge and transform regional and
rural Australia for the worse. Notwithstanding the development of
advanced farming techniques, climate change threatens to do great
harm to our grain, pastoral and livestock industries. At the same
time our agricultural sector, forests and soils present Australia
important opportunities to reduce our greenhouse gas emissions. The
Australian Government’s mitigation strategy is based upon
taking action to support renewable energy, improve energy
efficiency and introduce a price on carbon.

On 24 February
2011 the Prime Minister announced the framework of a carbon pricing
mechanism to place an explicit price on emissions from stationary
energy, transport, fugitives, industrial processes and non-legacy
waste. That framework also recognises the importance of abatement
outside of those sectors and this bill is an essential step in
creating a regime which will measure, verify and credit abatement
actions in sectors which will not have direct liability under the
proposed carbon pricing mechanism. The Government is currently
consulting with the community on this framework and the role that
credits created under this bill will have in the
scheme.

The international
community has long recognised the need to act to reduce greenhouse
gas emissions and countries around the world are already taking
significant action both to reduce greenhouse gas emissions and
enhance carbon sinks such as forests and soils.

The United Nations
Framework Convention on Climate Change was ratified by Australia on
30 December 1992. The Convention is aimed at stabilising greenhouse
gas concentrations in the atmosphere at a level that would prevent
dangerous anthropogenic interference with the climate system. It
includes an obligation on Australia to ‘adopt national
policies and take corresponding measures on the mitigation of
climate change, by limiting anthropogenic emissions of greenhouse
gases and protecting and enhancing its greenhouse gas sinks and
reservoirs’ (Article 4.2(a)). It provides an overall
framework for intergovernmental efforts on climate
change.

Under the Kyoto
Protocol, Australia is committed to restraining its national
emissions to an average of 108 per cent of 1990 levels over the
first commitment period (2008 to 2012). While Australia’s
emissions projections released on 9 February 2011 demonstrate that
Australia is on track to meet this target, without additional
policy action our emissions are projected to be 24 per cent above
2000 levels by 2020 and 44 percent above 2000 levels by 2030. As
the highest per capita emitter in the developed world and one of
the 20 largest emitters on an absolute basis, Australia must take
action.

Australia
submitted its current 2020 target range to the Copenhagen Accord in
January 2010 and in December 2010 the pledges under that Accord
were incorporated into the UN process through the Cancun
Agreements. The pledges incorporated are from countries
representing more than 80 per cent of global emissions, including
China, the United States, the European Union, India and Japan. If
Australia does not begin to decouple its growth in emissions from
the growth of its economy, it risks being left behind and forgoing
the opportunities our natural resources, landscape and ingenuity
present if we embrace a clean energy future.

Abatement activities

The Carbon Farming
Initiative (the scheme) will enable crediting of land sector
greenhouse gas abatement, whether or not it is recognised towards
Australia’s Kyoto Protocol target. Abatement may be
achieved by:

â¢
Reducing or avoiding emissions, for example, through capture and
destruction of methane emissions from landfill or livestock manure;
or

â¢
Removing carbon from the atmosphere and storing it in soil or
trees, for example, by growing a forest, or farming in a way that
increases soil carbon.

These activities
will be undertaken as offsets projects. Carbon credits represent
abatement of greenhouse gases achieved as a result of offsets
projects.

Carbon credits are
usually purchased and used by individuals or companies to cancel
out or ‘offset’ the emissions they generate during
their day-to-day life or normal course of business, for example, by
consuming electricity or catching a plane.

Carbon credits can
be used to offset emissions voluntarily or to meet regulatory
requirements.

Scheme processes

There are a number
of steps involved in establishing and operating an offsets project.
These are illustrated in the diagram below.

The project
manager needs to become a recognised offsets
entity.

There needs to be
an approved methodology for the type of project.

The project must
be undertaken in accordance with the methodology and comply with
other scheme eligibility requirements.

The project
proponent reports on their project and the Administrator issues
Australian carbon credit units (ACCUs) into their Australian
National Registry of Emissions Unit account.

Projects can be
transferred or terminated. The scheme includes enforcement
provisions.

The processes of the
scheme

Offset methodologies

Offsets projects
established under the scheme will need to use approved
methodologies. These will contain the detailed rules for
implementing and monitoring specific abatement activities under the
scheme.

Methodologies can
be developed and proposed by private proponents, as well as
government agencies. The Government is working with
stakeholders to develop methodologies that can be used by anyone
undertaking a similar project. A public call for
methodologies was issued on 11 March 2011, and methodologies are
expected to be rolled out progressively from April
2011.

An independent
expert committee, the Domestic Offsets Integrity Committee (DOIC),
has been established to assess proposed methodologies and make
recommendations to the Minister for Climate Change and Energy
Efficiency on their approval. The DOIC will ensure that
methodologies are rigorous and lead to real and verifiable
abatement.

Environmental integrity
requirements

The paramount
consideration in the design of the scheme is ensuring that offsets
recognised under the scheme are genuine.

ACCUs would only
be issued for additional abatement, which means that ACCUs would
not be available for abatement practices and activities that are
already widely used by farmers or other land holders. This
requirement will not prevent crediting of activities that improve
agricultural productivity or have biodiversity and other
co-benefits.

Sequestration
projects will be subject to additional requirements, including a
requirement to hand back ACCUs if the project is terminated or
carbon stores are deliberately destroyed. Landholders will not be
required to hand back ACCUs if carbon stores are lost as a result
of drought, bushfire or other factors outside their control. These
losses will be managed by withholding a proportion of ACCUs from
sequestration projects (a risk of reversal buffer). Landholders
will, however, be required to re-establish carbon stores and will
not receive further ACCUs until this
occurs.

Other elements of
the design of the scheme to ensure the integrity of ACCUs include:
issuance of ACCUs after the sequestration or emissions reductions
have actually occurred and following the submission of a project
report, registration of ACCUs in a central national registry,
transparency provisions including the publication of a wide range
of information about approved projects, and appropriate enforcement
provisions to address non-compliance.

Optimising community and environmental
benefits

To ensure that
abatement projects do not have perverse or unintended impacts,
offsets projects will need to comply with all state, Commonwealth
and local government water, planning and environment requirements.
Project proponents will also be required to take account of
regional natural resource management plans. These provide a
mechanism for local communities to have their say about the type
and location of abatement projects.

Project proponents
will be able to include environmental and community co-benefits on
the Register of offsets projects. The Government will develop a
co-benefits index to provide a low-cost, credible standard for
co-benefits, which can be recognised easily within the carbon
market. This will assist project proponents to obtain a premium for
ACCUs from these projects in the voluntary
market.

The Government
will monitor the implications of the scheme for regional
communities and introduce further restrictions on abatement
projects as necessary, if there is evidence that projects are
likely to have a material and adverse impact on the allocation of
prime agricultural land, water availability or
biodiversity.

Interaction with carbon
markets

The scheme
establishes the institutional framework for a market-based approach
to reducing emissions in the land sector. The credits created by
the scheme will be able to be sold into a variety of
markets.

In Australia, any
company or person wishing to offset their emissions and achieve
carbon neutrality for goods or services can do so under the
National Carbon Offset Standard. Once the scheme commences
companies will be able to surrender ACCUs generated under this
scheme to offset their emissions. To ensure that such action is a
genuinely additional reduction of greenhouse gases to that already
committed by the Government, the Government will ensure that this
abatement is not counted towards Australia’s Kyoto target or
any subsequent international obligation. Such voluntary action is
thus guaranteed to be of additional benefit to combating climate
change beyond the mitigation driven by other policies and
programs.

The scheme also
allows for Kyoto-consistent credits issued under the Carbon Farming
Initiative to be exchanged for Kyoto-consistent credits and
exported overseas. Similarly these units will not then be used to
meet Australia’s international obligations.

The price of
credits is likely to vary and these markets often differentiate
carbon abatement from different sources and place a premium on
credits from projects that have co-benefits such as protecting
biodiversity.

A market will
allow abatement suppliers and companies who seek credits to work
together in mutually supporting ways and underpin investments with
long term contractual arrangements. The Government does not need to
pick winners out of these processes and the ingenuity of buyers and
sellers will work to unlock the lowest cost options to store or
reduce emissions. Moreover, the ability to use Kyoto credits in a
future carbon price mechanism would significantly increase their
value.

To facilitate the
development of the carbon market, the Government will assist with
market information, and is providing support for scientific
research, methodology development and the provision of information
to farmers and landholders about the scheme.

Stakeholder Consultation

The Department of
Climate Change and Energy Efficiency (the Department) consulted
with stakeholders on options for scheme design from October 2010 to
early February 2011.

The consultation
process involved individual meetings and workshops in Canberra,
Sydney, Adelaide, Melbourne, Perth, Brisbane, Darwin and some
regional centres, as well as formal submissions. Over 350
individuals attended meetings with the Department, representing
almost 250 organisations.

A consultation
paper on the proposed design of the scheme was released for public
comment on 22 November 2010.

Approximately 280
submissions were received from a diverse range of stakeholders,
including farmers, regional bodies and scientific
organisations.

Stakeholder
feedback was broadly positive. Several stakeholders noted that
scheme incentives would depend on linking to a carbon price
mechanism.

The standard
crediting period has been increased to 7 years with provision to
specify longer crediting periods for activities such as
reforestation in the regulations.

Concerns about the
protection of native forests and the potential for adverse impacts
from scheme projects have been addressed through requiring that
avoided deforestation projects are only for native forests, and
creating the potential for the regulations to contain a
‘negative list’ of abatement activities ineligible for
ACCUs because they have a high potential for perverse
outcomes.

Other amendments
addressed concerns by the waste sector on the coverage of waste
diversion activities and include a more generous definition of
“legacy waste”.

Streamlining

Some groups
considered the scheme overly complex, with high administrative
costs, and were concerned that additionality rules will limit
scheme opportunities.

Concerns were
addressed by removing the project-level additionality test,
including references to financial additionality. Instead, abatement
activities that are not common practice within an industry or
region would be included on a ‘positive list’ and
recognised as additional.

Administrative and
compliance costs have been reduced through removing reporting
requirements for sequestration projects that have reached maturity
and are no longer generating ACCUs and allowing project proponents
to choose a reporting period between 12 months and 5 years.
There is also the capacity for regulations to reduce audit
requirements for less complex projects.

Date of
effect : Clauses 1 and 2 and other
parts of the bill will come into effect on the day the bill
receives Royal Assent. Clauses 3 to 307 will come into effect on a
date fixed by proclamation, not later than six months and a day,
after the Australian National
Registry of Emissions Units Bill 2011 and the
Carbon Credits (Consequential
Amendments) Bill 2011 have received Royal Assent.

Financial
impact : The total cost of the
Carbon Farming Initiative is capped at $45.6 million over four
years, with the following profile: $4.4 million in 2010-11, $16.1
million in 2011-12, $13.1 million in 2012-13 and $11.9 million in
2013-14. This includes $4 million to provide information
about the scheme to land mangers via Landcare.

Outline of chapter

1.1
This chapter describes the different types of abatement projects
that will be eligible for Australian carbon credit units (ACCUs)
under this scheme.

1.2
The relevant provisions are contained in Parts 1 and 3 of the
bill.

Context

1.3
The scheme covers land sector abatement meaning that any land
management practices or activities that enhance biosequestration
(sequestration) or reduce agricultural emissions could be eligible
for ACCUs. The scheme also covers reductions in some waste
emissions.

1.4
The Carbon Farming Initiative is a stand-alone scheme but would be
complementary to a carbon pricing mechanism, which the Government
has announced would exempt agricultural emissions.

1.5
Notwithstanding the coverage of the scheme, the Minister may
exclude projects that could have significant adverse impacts on
water availability, food production and the local communities,
conservation of biodiversity or employment.

1.6
Emissions avoidance projects and sequestration offsets projects are
separately identified because permanence provisions, including the
risk of reversal buffer, are applicable to sequestration projects
only.

1.7
Kyoto and non-Kyoto abatement projects are also separately
identified, as are the ACCUs issued for such projects. This is to
assist buyers because, under the Kyoto Protocol, not all land
sector abatement is internationally recognised. Kyoto and non-Kyoto
ACCUs are likely to be traded in different markets and at different
prices.

Explanation of new law

Coverage

Sequestration
Projects

1.8
This scheme covers biosequestration (sequestration). The plain
English meaning of ‘sequestration’ is
‘storage’.

1.9
Sequestration offsets projects are defined as projects to store
carbon dioxide, which has been removed from the atmosphere, in
living biomass such as forests, dead organic matter such as leaf
litter or in soil [Part 3, Division 12, clause
54]. The scheme does not cover
geosequestration (commonly referred to as carbon capture and
storage).

1.11
Examples of sequestration projects might include a project which
involves avoiding clear-felling an area of native forest, or a soil
carbon project which involves management practices that are
designed to reduce expected losses of soil carbon as well as
increasing soil carbon sequestration.

1.12
Any project that involves maintaining or increasing carbon stores
is a sequestration project and is subject to permanence obligations
(see chapter 6 of this explanatory memorandum). This is because
there is a risk that the carbon which is maintained or stored
through carrying out the sequestration offsets project will be
re-released into the atmosphere, for example, if a protected native
forest is subsequently cleared, or if a bushfire occurs in the
project area of a reforestation project. Permanence obligations
address this risk through a number of mechanisms, for example by
requiring a project proponent to re-establish carbon stores if
carbon is lost through natural disturbance or deliberate
action.

1.13
Land management practices that may enhance sequestration and are
covered by the scheme include, but are not limited to:

â¢
Reforestation

â¢
Revegetation

â¢
Native forest protection

â¢
Avoided de-vegetation

â¢
Improved management of forests

â¢
Reduced forest degradation

â¢
Forest restoration

â¢
Rangeland restoration

â¢
Improved vegetation management

â¢
Enhanced or managed regrowth

â¢
Enhanced soil carbon

1.14
While biosequestration from a wide range of activities could be
credited under the scheme, not all will be internationally
recognised. For example, improved forest management, revegetation
and activities that enhance carbon in agricultural soils are not
recognised under the current international framework and would
receive non-Kyoto ACCUs.

Native forest protection
projects

1.15
The scheme will cover projects to protect native forests from
clearing or clear felling.

1.16
Projects may not involve the clearing of native forests or using
material obtained as a result of the clearing or harvesting of
native forests [Part 3, Division 2, clause
27(4)(j)] . This would prevent
clearing of low-density native forest to establish a higher-density
carbon sink plantation, or biochar projects that make use of
materials from native forests.

1.18
The scheme covers reductions in emissions from feral animals that
are not managed within an agricultural system [Part 3, Division 12, clause
53(1)(c)] . These emissions are not
internationally recognised [Part 3, Division 12, clause
55] .

1.19
The scheme also covers reductions in emissions from legacy waste
deposited in landfill facilities - these emissions are
internationally recognised [Part 3, Division 12, clause 53(1)(b) and clause
55(1)(b)] . ‘Legacy’ waste
includes waste deposited prior to the introduction of a carbon
price. Incentives to reduce emissions from new waste may be
provided via a carbon pricing mechanism.

1.20
The Government has indicated that it intends to commence carbon
pricing on 1 July 2012, subject to the ability to pass
legislation this year. As legislation has not yet passed, the
Minister may make a legislative instrument that specifies the date
from which waste deposits would be subject to a carbon price and
would no longer be eligible to generate ACCUs [Part 1, clause 5, definition of ‘landfill
legacy emissions avoidance
project’] . It is intended that
this date will be the date the carbon price commences.

1.21
Emissions from landfill facilities can be avoided by capturing and
destroying the emissions at the landfill facility or by diverting
waste to prevent it from reaching the landfill. It is intended that
waste diversion and alternative waste treatment activities,
together with abatement activities at the landfill facility, be
eligible for crediting under the scheme.

1.22
The scheme does not cover reductions in emissions from electricity
or transport, even if these emissions are the result of
agricultural production or directly associated with an abatement
project. Electricity and transport emissions may be covered by the
carbon pricing mechanism, which would create incentives to reduce
emissions from these sources.

1.23
The bill provides for other kinds of emissions avoidance projects
to be specified in the regulations [Part 3, Division 12, clause
53(1)(d)] . This provision will enable
coverage of additional activities. No expansion is currently
envisaged.

1.24
In accordance with the Legislative Instruments Act 2003 ,
where the bill indicates that regulations may specify a particular
kind of project as an emissions avoidance project, the regulations
may identify more than one particular kind or class of project
[Part 3, Division 12, clause
53(2)] .

Excluded projects

1.25
The Minister may recommend that regulations are made to exclude
certain types of sequestration or emissions avoidance projects that
would otherwise be eligible for ACCUs under the scheme [Part 3, Division 12, clause
56] . This is known as a
‘negative list’.

1.26
In making these recommendations, the Minister must consider whether
there is a significant risk that in the areas where the projects
are likely to be undertaken, they will have a significant adverse
impact on:

â¢
the availability of water;

â¢
biodiversity conservation;

â¢
employment; or

â¢
the local community [Part 3, Division 12, clause
56(2)].

1.27
These impacts may be in, or in the vicinity of, the project area,
or any of the project areas, for that kind of project [Part 3, Division 12, clause
56(2)] . The intention is that vicinity
may be interpreted broadly, including water resource availability
in associated catchments.

1.28
The Government has committed to monitoring the impact of the scheme
on the environment and on rural communities, and to taking steps to
prevent perverse impacts if state, local and existing Commonwealth
planning, water and environmental frameworks are inadequate.
This provision will enable the Minister to address quickly any
risks of perverse impacts.

1.29
The Government intends to include on the negative list projects
that involve the complete cessation of harvesting in plantations
established for harvest; that is, converting harvest plantations
into permanent carbon sinks.

1.30
Some harvest plantations established in response to incentives
provided through Managed Investment Schemes may not be commercially
viable. Converting such plantations into carbon sinks may have
perverse environmental consequences and pose a risk to the
integrity of the scheme. Plantations are designed to be
harvested and may become sources of emissions if maintained over
long periods. If converted into permanent sinks, such plantations
could have relatively high fire risk. The costs of managing
plantations designed for harvest could therefore increase over
time, posing a growing risk of reversal. For these reasons,
projects to protect forests from clearing or clear-felling for
harvest can only involve native forests.

1.31
This would not prevent the replacement of unprofitable harvest
plantations with permanent environmental plantings.

1.32
The Government will also include on the list reforestation projects
established on land that has not been legally cleared or on land
that has been cleared since 31 December 2009. This is to
remove any perverse incentive to clear existing forests to
establish new carbon sequestration projects.

1.33
If there are types of projects that have an adverse impact on the
availability of surface or ground water, the Government will
include these on the list of excluded projects. These impacts may
be downstream of the project or elsewhere in the catchment. This
will help ensure that sequestration projects are established on
appropriate sites in the landscape and that water is available to
sustain plantings in the long term.

1.34
The bill clarifies that, in accordance with the Legislative Instruments Act 2003 ,
where the bill indicates that regulations may specify a particular
kind of project to be excluded from the scheme, the regulations may
identify more than one particular kind or class of project
[Part 3, Division 12, clause
56(3)] .

Kyoto and non-Kyoto

1.36
The regulations will specify which sequestration offsets projects
are considered to be Kyoto projects [Part 3, Division 12, clause
55(1)(c)] . In accordance with the
Legislative Instruments Act
2003 , where the bill indicates that the regulations may
specify a particular kind of offsets project to be a Kyoto offsets
project, the regulations may identify more than one particular kind
or class of project [Part 3, Division 12, clause
55(4)] .

1.37
Kyoto and non-Kyoto projects (or parts of projects) are
differentiated, according to international accounting rules, and
are eligible for Kyoto ACCUs and non-Kyoto ACCUs
respectively. The relevant Kyoto accounting rules will be
reflected in the regulations.

1.38
As indicated above, some emissions reductions projects and some
sequestration projects are internationally recognised under the
Kyoto Protocol, and some are not.

1.39
The only non-Kyoto emissions reduction projects would be those
involving feral animal management. All other emissions avoidance
projects (as defined in this bill), which are covered by the
scheme, are internationally recognised.

1.40
Distinguishing between Kyoto and non-Kyoto emissions sequestration
is difficult because international recognition depends on:

â¢
the type of sequestration activity (for example, Australia counts
reforestation (as defined under the Kyoto rules) but not
revegetation towards its Kyoto targets); and

â¢
the eligibility of the land on which the activity occurs
(reforestation is only counted if it occurs on land cleared prior
to 1990).

1.41
This means that some projects are likely to involve both Kyoto and
non-Kyoto sequestration.

1.42
Further, increases in soil carbon as a result of reforestation may
not be internationally recognised. This means that there can be
both Kyoto and non-Kyoto sequestration on a single area of
land.

1.43
The Government will publish indicative Kyoto land eligibility maps
to assist project proponents to identify areas of their project
that would be counted towards Australia’s Kyoto target.
Proponents could use these maps, in conjunction with the Kyoto
accounting rules reflected in the regulations to identify the Kyoto
and non-Kyoto components of their projects. As Kyoto and non-Kyoto
ACCUs are likely to have different market values, this will assist
project proponents to assess the potential returns on their
project.

1.44
Project proponents may prefer to divide their activity into its
Kyoto and non-Kyoto components, and to seek approval and report on
these separately.

1.45
Even with the assistance of indicative Kyoto land eligibility maps,
project proponents may find it difficult to separately manage and
report on Kyoto and non-Kyoto components of a sequestration
activity, such as reforestation or managed regrowth. For this
reason, project proponents have the option of developing and
reporting on Kyoto and non-Kyoto sequestration as part of the one
project.

1.46
If a project proponent chooses to do this, the Administrator will
split the project application into separate applications and treat
the Kyoto and non-Kyoto components as separate projects in their
own right [Part 3, Division 2, clause 26],
[Part 3, Division 12, clause
55(6)].

1.47
This enables the Administrator to issue Kyoto ACCUs for the Kyoto
component of the project and to issue non-Kyoto ACCUs for the
non-Kyoto component.

1.48
Projects may be split even if they relate to the same area of land,
for example, projects could relate to different carbon pools on the
same area of land [Part 3, Division 12, clause
55(6)] .

1.49
For example

Kristin wants to
enhance regrowth on her Queensland property. The land eligibility
maps indicate that regrowth would only be Kyoto-eligible on some
parts of her property. Kristin decides it would be easier to seek
approval and report on her enhanced regrowth as a single
project.

Kristin submits a
single report and is issued with Kyoto and non-Kyoto units for the
different components of her project.

Structure of projects

1.50
A project can cover multiple land areas or facilities. However, for
sequestration projects, the project proponent must hold the carbon
sequestration right over all the project areas.

1.51
This means that a project aggregator would need to purchase the
carbon sequestration rights from individual land holders in order
to become the project proponent.

1.52
Alternatively, companies could act as service providers to
proponents of small projects. The service provider would act as the
agent for the land manager, obtaining project approvals and
reporting on the project. The land manager, as project proponent,
would receive the credits and would still be responsible for
complying with scheme obligations.

1.53
For example:

Ben Kello’s
Carbon Trading Company is developing a project that aggregates
small areas of revegetation across multiple
properties.

Ben approaches
landholders in the region, including the Green Sheep Co, seeking to
buy their carbon rights. Some landholders agree.

Ben pays these
landholders for their carbon rights upfront and then manages every
aspect of the revegetation project on their land.

The Green Sheep Co
is not interested in selling their carbon rights to Ben. The
company director wants to plant trees on a portion of each of his
six properties, retain his carbon rights and use the ACCUs he
receives for the project to market Green Sheep wool as carbon
neutral.

The Green Sheep Co
becomes the project proponent and pays Ben a fee to develop, manage
and report on the company’s reforestation
project.

1.54
There can only be one methodology determination for a project. This
means that land managers wishing to undertake a combination of
abatement activities will need to treat each activity as a separate
project.

1.55
For example:

Northern
Cattleperson’s Inc wants to undertake a project to increase
their herd efficiency thereby reducing the emissions intensity of
their beef production. The company is also interested in
undertaking revegetation on part of the land previously used for
beef production.

The company
submits two applications: one for a livestock project and one for a
revegetation project. Both are approved.

Outline of chapter

2.1
This chapter sets out the requirements for recognition as an
offsets entity.

2.2
The term ‘recognised offsets entity’ is used to refer
to a person that meets the ‘fit and proper person’ test
and can therefore participate in this scheme.

2.3
The relevant provisions are contained in Parts 4, 10, 24 and 28 of
the bill.

Context

2.4
A person may become a recognised offsets entity only if they are
‘fit and proper to participate in the scheme’. For
example, people who have been convicted under an offence relating
to the conduct of a business or dishonest conduct will be excluded
from the scheme.

2.5
This requirement is one of a number of features in the scheme which
are designed to reduce the risk of fraud, deceptive or unfair
conduct, and non-compliance.

Explanation of new law

Recognised offsets
entities

2.6
A person must be a ‘recognised offsets entity’ to
receive Australian carbon credit units (ACCUs) for an eligible
offsets project.

Application process

2.7
A person (including an individual, a body corporate or a body
politic such as a state or a territory) may apply to the
Administrator to become a recognised offsets entity [Part 4, clause
60(1)] . A body politic includes the
crown.

2.8
A person is not entitled to make an application before the
28 th day after the commencement of this section
[Part 4, clause
60(2)] . This is to prevent the
Administrator from having to assess and recognise offsets entities
before commencement of the scheme. A person does not have to be a
recognised offsets entity to apply for endorsement of a draft
methodology by the Domestic Offsets Integrity Committee (DOIC).

2.9
The regulations may specify any information or documents that must
accompany an application [Part 4, clause 61(1)(c) and
(d)]. The information may include, for
example, proof of identity documents.

2.10
The Administrator may by written notice require an applicant to
provide additional information that the Administrator considers
necessary to enable a decision to be made on an application
[Part 4, clause
62(1)] . The Administrator must ensure
that the information requested is relevant to its consideration of
the application and must exercise this power reasonably
[Part 28, clause
288] .

2.11
Where that information is not provided within the timeframe
specified in the notice, the Administrator may refuse to consider,
or take any further action in relation to, the application
[Part 4, clause
62(2)] .

2.12
The regulations may specify an application fee [Part 4, clause
61(1)(e)] . The purpose of the fee is
to enable the Administrator to recover costs associated with
processing the application [Part 4, clause
61(3)] .

2.13
An applicant may withdraw their application at any time before the
Administrator has made a decision on the application [Part 4, clause
63] .

2.14
The Administrator must take all reasonable steps to ensure that a
decision is made on the application within 90 days of the making of
the application or, where relevant, the receipt of further
information [Part 4, clause
64(5)] . This provision is not intended
to result in the invalidity of a decision made after that time but
imposes a duty to take all reasonable steps to make the decision
within that timeframe. If the Administrator decides to refuse the
application, the applicant must be given written notice of this
[Part 4, clause
64(6)] . A decision to refuse
recognition of the applicant as an offsets entity is reviewable
[Part 24, Division 2, clause
240] .

Criteria for
recognition

2.15
The Administrator may recognise the applicant as an offsets entity
if satisfied that, among other things, the applicant is a fit and
proper person. In making this assessment the Administrator must
have regard to matters that include any convictions the applicant
has under a law of the Commonwealth, a state or a territory
relating to dishonest conduct, breaches by the applicant of the
scheme legislation or the associated provisions and any other
matters the Administrator considers relevant [Part 4, clause
64(3)] .

2.16
Under the ‘fit and proper person’ test, the
Administrator must also have regard to any orders made against the
applicant by the Australian Competition and Consumer Commission,
whether the applicant has breached the National Greenhouse and Energy Reporting Act
2007 or this bill and its associated provisions. This is
intended to exclude from the scheme anyone with a track record of
breaching requirements related to offset projects and reporting,
and to reinforce compliance provisions under this bill.

2.17
The Administrator must be satisfied that the applicant, where an
individual, is not an insolvent under administration or, where a
body corporate, is not under external administration [Part 4, clause 64(3)(b) and
(c)].

2.18
The regulations may specify additional criteria, such as a
requirement that the applicant have some other type of approval or
licence under a Commonwealth, state or territory law that is
relevant [Part 4, clause
64(3)(d)] .

2.19
Recognised offsets entities will be required to maintain their
eligibility for recognition while they participate in the
scheme.

2.20
The Administrator will have the power to cancel a person’s
recognition if satisfied that the person is no longer a fit and
proper person, assessed against the same criteria as for
recognition [Part 4, clause
65] . Cancellation of recognition is a
reviewable decision under Part 24 of the bill [Part 24, Division 2, clause
240] .

2.21
A person may voluntarily surrender their recognition as an offsets
entity at any time by written notice to the Administrator
[Part 4, clause
66] .

2.22
As recognition of an offsets entity is specific to that
person, the entity’s recognition cannot be transferred to
another person [Part 4, clause
67] .

Multiple project
proponents

2.23
In some circumstances there may be more than one person who has the
responsibility and the legal right to carry out a project, and hold
the carbon sequestration rights. For example, a property may be
owned by a married couple.

2.24
Part 10, Division 2 of the bill allows all members of a group to
both share in the benefits of a project and also be joint and
severally liable for responsibilities relating to the project. The
objective of this is to:

â¢
allow participation by multiple Carbon Sequestration Right holders
to enable participation by a broader range of landholders;
and

â¢
ensure all applicants are recognised offsets entities in order to
uphold the integrity of the scheme [Part 10, Division 2, clause
135] .

2.25
In the case where there are multiple project proponents they may
jointly nominate one of the proponents as the nominee in relation
to the project [Part 10, Division 3, clause
136] .

2.27
The nominee is also the representative of the multiple project
proponents to whom any documents are served. If documents are
served on the nominee, those documents are thereby taken to have
been served on each of the multiple project proponents [Part 10, Division 3, clause
137] .

2.28
The nominee may request to open an Australian National Registry of
Emissions Units account on behalf of the multiple project
proponents [Part 10, Division 3, clause
140(2)] . Only the nominee will be able
to give instructions in relation to the account [Part 10, Division 3, clause
143(2)] . This is the account in which
the ACCUs generated by the eligible offsets project will be issued
and held on behalf of the project proponents [Part 10, Division 3, clause 141 and
142] .

2.29
A nomination can be revoked by any member of the group [Part 10, Division 3, clause
136(5)]. Alternatively, the nomination
will cease if the nominee is no longer part of the group
[Part 10, Division 3, clause
136(6)] . If the project proponents
decide that they would like to change the nominee, they have to
jointly inform the Administrator in writing [Part 10, Division 3, clause
136(2)] . If a nominee changes, the
Administrator is responsible for updating the account details in
the Australian National Registry of Emissions Units [Part 10, Division 3, clause
144] .

2.30
The regulations may provide a power for the Administrator to revoke
the declaration of an eligible offsets project where there are two
or more project proponents, and the Administrator is not provided
with a nominee within 90 days [Part 10, Division 3, clause 139(1) and
(2)] . Before a project is revoked, the
regulations must require that the Administrator consult with the
multiple project proponents [Part 10, Division 3, clause
139(3)] .

2.31
Any obligation on the multiple project proponents is imposed on
each member of the group but may be discharged by any member of the
group [Part 10, Division 3, clause
145] . This means that the
Administrator could take action against any member of the group in
relation to enforcing any obligation under the bill.

Outline of chapter

3.1
This Chapter sets out the eligibility criteria for offsets projects
and the circumstances in which projects can be varied or revoked by
the Administrator.

3.2
The relevant provisions are contained in Parts 1, 3 and 7 of the
bill.

Context

3.3
Offsets projects must be approved by the Administrator. This
is to minimise the risk of abatement projects that have adverse
social or environmental impacts, and to ensure that sequestration
projects are undertaken with the consent of other interest holders
in the land.

3.4
The Administrator may revoke an offsets project if it no longer
meets the eligibility criteria. This is to promote compliance
with scheme obligations.

Explanation of new law

Eligible project
declaration

3.5
The Administrator may declare that an offsets project is eligible
under this scheme. This is called a declaration of an eligible
offsets project.

3.6
Australian carbon credit units can only be issued for offsets
projects that have been declared eligible.

3.7
The declaration will identify the name of the project, the project
proponent, and identify attributes of the project as specified in
the regulations [Part 3, Division 2, clause
27(3)] .

3.8
The declaration will specify the project area [Part 3, Division 2, clause
27(3)(b)] . It is intended that the
regulations specify mapping standards and that information be
provided to the Administrator in an electronic format.

3.9
The declaration would also confirm whether an eligible offsets
project is a Kyoto project or a non-Kyoto project [Part 3, Division 2, clause
27(2)] . This is to confirm the
project’s eligibility for either Kyoto or non-Kyoto ACCUs. To
make such a declaration, the Administrator must be satisfied as to
whether the project is a Kyoto or a non-Kyoto project [Part 3, Division 2, clause 27(12) and
(13)] .

3.10
A declaration made under this section is not a legislative
instrument [Part 3, Division 2, clause
27(20)] . The declaration is not of a
legislative character and is therefore not within the meaning of
section 5 of the Legislative
Instruments Act 2003 . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required.

Application process

3.11
A person may apply to the Administrator for the declaration of an
eligible offsets project [Part 3, Division 2, clause
22(1)] .

3.12
For the purposes of this bill, a person includes an individual, a
body corporate, a trust, a corporation sole, a body politic and a
local governing body [Part 1, clause 5, definition of
‘person’] .

3.13
The application must be in writing, in a form approved by the
Administrator [Part 3, Division 2, clause
23(1)(a) and (b)] .

3.14
The regulations may specify an application fee [Part 3, Division 2, clause
23(1)(i)] . The purpose of the fee is
to enable the Administrator to recover costs associated with
processing the application. [Part 3, Division 2, clause
23(3)] .

3.15
An application can be withdrawn at any time and doing so does not
prevent the applicant from making a fresh submission [Part 3, Division 2, clause 25(1) and
(2)] . If this occurs, any fees paid in
relation to the application would be refunded [Part 3, Division 2, clause
25(3)] . This provision recognises that
it would normally be preferable for the Administrator to advise the
applicant of deficiencies in their application and to allow the
applicant to withdraw and re-submit an improved application without
cost, rather than proceeding to reject the application.

3.16
The application must be accompanied by a statement of consistency
with the relevant regional natural resource management plan
[Part 3, Division 2, clause
23(1)(g)] . The Government recognises
that, in terms of content, regional natural resources management
plans vary but considers they can be an appropriate vehicle for
local communities to have input on land use and planning with
respect to abatement projects.

3.17
The application must be accompanied by other information or
documents specified in the regulations [Part 3, Division 2, clause 23(1)(c) and
(h)] . For example, the Administrator
may require additional information relevant to whether land should
be accounted for under the Kyoto Protocol.

3.18
Where appropriate, the Administrator will take a light-handed
approach to documentation to reduce administrative costs for the
project proponent, for example, the Administrator may provide for
statements to be verified by statutory declaration [Part 3, Division 2, clause
23(2)] .

3.19
If the Administrator has requested further information, the
Administrator can refuse to consider or take further action with
respect to the application if this is not provided as requested
[Part 3, Division 2, clause
24(1)], [Part 3, Division 2, clause
24(2)] .

3.20
The regulations may provide that applications for approval of
eligible offsets projects be accompanied by an audit report
[Part 3, Division 2, clause
23(1)(d)] . In accordance with the
Legislative Instruments Act
2003 , where the bill indicates that regulations may
specify a particular kind of project to be accompanied by an audit
report, the regulations may identify more than one particular kind
or class of project [Part 3, Division 2, clause
23(5)] .

3.21
The application may be accompanied by a statement to the effect
that the project should be subject to the voluntary automatic
cancellation regime [Part 3, Division 2, clause
23(4)] . This is to enable project
proponents that have already sold the potential carbon storage from
their sequestration projects to participate in the scheme, without
receiving double credit for their abatement (see Chapter 9 of this
Explanatory Memorandum).

3.22
The Administrator must take all reasonable steps to decide on an
application within 90 days of receiving all required information
[Part 3, Division 2, clause
27(14)] . This provision is not
intended to result in the invalidity of a decision made after that
time but imposes a duty to take all reasonable steps to make the
decision within that timeframe. Where information is not provided
within the timeframe specified in the notice, the Administrator may
refuse to consider or take any further action in relation to the
application [Part 3, Division 2, clause
24(2)] .

3.23
If the Administrator refuses to make the declaration it must tell
the applicant in writing [Part 3, Division 2, clause
27(18)] .

3.24
A declaration takes effect from the date it is made or, with the
agreement of the applicant, at an earlier specified date that is
not earlier than 1 July 2010 [Part 3, Division 2, clause 27(15) and
(16)] . This is to enable backdating of
projects that are already in existence, for example, those from the
Australian Government’s Greenhouse Friendly program.

3.25
The Administrator has to notify the applicant and the relevant land
registration official of an offsets project as soon as practical
after the declaration is made [Part 3, Division 2, clause
27(17)] . This is to enable a
notification to be placed on the relevant land title that would
alert anyone taking an interest in the project land that it is
subject to obligations under this
legislation.

Eligibility criteria

3.26
The Administrator must not declare an eligible offsets project
unless the Administrator is satisfied that the following criteria
are met:

â¢
The project must be in Australia [Part 3, Division 2, clause
27(4)(a)] . This is because the
Administrator does not have jurisdiction beyond Australia’s
borders and, therefore, cannot ensure the integrity of overseas
projects.

â¢
The project must be covered by an applicable methodology
determination, and the project must be undertaken in accordance
with its requirements, including for monitoring and reporting
[Part 3, Division 2, clause 27(4)(b) and
(c)] . This is to ensure that abatement
estimates are measurable and verifiable.

â¢
The project must pass the additionality test, which is designed to
ensure that ACCUs represent genuine abatement [Part 3, Division 2, clause
27(4)(d)] .

â¢
The applicant must be the project proponent; that is the person who
is responsible and has the legal right to carry out the project
[Part 3, Division 2, clause
27(4)(e)] (see below).

â¢
The applicant must be a recognised offsets entity; that is the
Administrator must have recognised the applicant as a fit and
proper person [Part 3, Division 2, clause
27(4)(f)] .

â¢
The project must not involve the clearing of a native forest or the
using of material obtained as a result of harvesting or clearing a
native forest [Part 3, Division 2, clause
27(4)(j)] . It is not intended that
this provision preclude projects that involve harvesting bush foods
or other uses of the forests that are consistent with keeping
forests healthy and intact. The regulations may therefore
specify permitted uses of materials obtained as a result of the
clearing or harvesting of native forests.

â¢
The Administrator must not make a declaration for a new project if
it includes land which is subject to a carbon maintenance
obligation [Part 3, Division 2, clause
27(10)] . This is to prevent a person
from receiving credit for increases in sequestration on an area of
land for which there is still an obligation to restore carbon
stores to a benchmark level.

Permanence
obligations

3.27
The Administrator must not make a declaration for a new project if
it includes land that was part of a prior project for which
permanence obligations were not met. Any permanence obligation
would need to be met in relation to an area of land before a new
project could be declared. This means that all ACCUs issued for the
prior project would have to be relinquished and any penalty and
late penalty for non-relinquishment would have to be paid before a
declaration for a new project could be made [Part 3, Division 2, clause
27(11)] . This is to prevent a person
from receiving credit for increases in sequestration on an area of
land for which there is still an obligation to relinquish ACCUs or
pay penalties for non-relinquishment.

Regulatory approvals

3.28
The Administrator must be satisfied that the project proponent has
obtained all regulatory approvals. This means that they must have
met all Commonwealth, state and local government planning,
environmental and water requirements.

3.29
If the relevant regulatory approvals have yet to be obtained, the
Administrator can issue a declaration that is conditional on the
project obtaining these approvals before the end of the
project’s first crediting period [Part 3, Division 2, clause
28] . This is to enable project
proponents to be certain that their project is approved before
going to the expense of obtaining regulatory approvals. It also
allows proponents additional time to obtain regulatory
approvals.

3.30
Once the necessary approvals have been obtained, the project
proponent will be able to apply to the Administrator to vary the
declaration to remove the condition [Part 3, Division 3, clause 31(1), (2) and
(3)] .

Project proponent

3.31
The concept of project proponent is central to the operation of the
bill because all ACCUs will be issued to the project proponent.
This is to ensure that ACCUs are issued to the right person, and
not to a person that might be trespassing or otherwise undertaking
a project illegally.

3.32
The project proponent must be the person who:

â¢
is responsible for the project;

â¢
has the legal right to carry out the project; and

in the case of sequestration projects, holds the
applicable carbon sequestration right in relation to the project
area [Part 1, clause 5, definition of
‘project proponent’]

3.33
The bill does not create any of these rights in favour of any
person - they must be obtained separately to the bill.

3.34
For emissions avoidance projects, the legal right to carry out the
project may involve ownership of the site of the project or an
agreement to use the site. It may also involve permission to carry
out that kind of activity on the site.

3.35
For example:

â¢
A farming lease may be sufficient to undertake an agricultural
emissions avoidance project such as livestock methane
reduction.

â¢
An access agreement to a pastoral station may be necessary to
undertake an introduced animal emissions avoidance project such as
camel reduction.

3.36
For sequestration projects, the legal right to carry out the
project will be a right sufficient to manage the carbon pool
related to the project. This could be ownership of the project
area, or it may involve a lesser interest in land, such as a
forestry right or a carbon management right attached to a carbon
sequestration right.

3.37
For example, a forest right to plant, establish, manage and
maintain vegetation on land is an interest in land which may be
registered under the Victorian
Climate Change Act 2010.

Applicable carbon sequestration
right

3.38
For sequestration projects, there are criteria that apply to
sequestration projects only. This is because sequestration projects
can be reversed and are therefore subject to permanence
obligations.

3.39
For sequestration projects, the project proponent must hold the
carbon sequestration right for all the relevant project area
[Part 1, clause 5, definition of ‘project
proponent’] . In essence, a
carbon sequestration right is the exclusive legal right to obtain
the benefit of sequestration of carbon dioxide in the relevant
carbon pool on the project area [Part 3, Division 8, clause
43] .

3.40
It is important to note that different jurisdictions around
Australia operate different systems to create and recognise carbon
rights and that carbon rights may be separate from land ownership
and forestry type rights - for example, different people may
hold the freehold title, the forestry right and the carbon
sequestration right over one area of land.

3.41
For these reasons, and noting that the bill does not create any
carbon sequestration rights in respect of any person, clause 43 of
the bill takes into account the various circumstances in different
jurisdictions and sets out when a person will be recognised to hold
the ‘applicable carbon sequestration right’ for the
purposes of the bill [Part 3, Division 8, clause
43] .

3.42
On Torrens system land, the interest including the exclusive right
to obtain the benefit of carbon must be either:

â¢
a registered interest in land;

â¢
a registered right which is an interest in land under state or
territory law; or

â¢
a registered right which runs with the land under a state or
territory law [Part 3, Division 8, clause
43(1), (2) and (3)] .

3.43
Note that the right must also be one that runs with the land
- that is, any purchaser of the land takes the land subject
to that right. If the right arises from an estate or interest in
the land in question, then the right will run with the land. For
example, the holder of a freehold title or an exclusive possession
lease will have the carbon sequestration right.

3.44
On Crown land, the interest including the exclusive right to obtain
the benefit of carbon must be either:

â¢
a legal interest in land;

â¢
a right which is an interest in land under state or territory law;
or

â¢
a right which runs with the land under a state or territory
law.

3.45
In addition, the Commonwealth or a state or territory may hold the
carbon sequestration right on Crown land [Part 3, Division 8, clause 43(7) and
(8)] .

3.46
If the project is on Crown land in a state or territory that is
property of the Commonwealth, the relevant Minister must certify
that the applicant has the applicable carbon sequestration right
[Part 3, Division 2, clause 27(4)(h) and
(i)] .

3.47
For example, a person will have the carbon sequestration right if
granted a right to exploit carbon on Crown land by the state.

3.48
The bill does not recognise carbon sequestration rights on general
law land - land that is neither Torrens system land nor Crown
land. State and territory legislation provides for the conversion
of general law land to Torrens system land.

3.49
The bill also provides for the recognition of carbon sequestration
rights on native title land (see chapter 4).

Consent

3.50
Each person with an eligible interest is required to give consent
to an application for a declaration of an eligible sequestration
offsets project [Part 3, Division 2, clause
27(4)(k)] and a variation of a project
declaration if specified in the regulations [Part 3, Division 3, clause
29(3)(f)] .

3.51
The consent of eligible interest holders must be in a form approved
by the Administrator. This allows the Administrator to ensure that
the consent form alerts eligible interest holders to potential
scheme obligations [Part 3, Division 2, clause
27(7)] .

3.52
The consent of eligible interest holders is a precondition to the
declaration of a project as an eligible offsets project because, in
some limited circumstances, an area of land involved in a project
can become subject to a carbon maintenance obligation (discussed in
chapter 6 below).

3.53
Depending on the circumstances, that obligation may have to be
satisfied by a person other than the applicant for the declaration
of a project as an ‘eligible offsets project’.
Therefore, it is important to ensure that persons who could be
subject to, or have their interests in land affected by the carbon
maintenance obligation have agreed to the land being brought into
the offsets scheme.

3.54
Consent may also be required from other persons specified in
regulations [Part 3, Division 2, clause
27(4)(k)] [Part 3, Division 9, clause 44(5) and
45(5)] . The purpose of this
regulation-making power is to ensure that consent is obtained from
further categories of persons (if any) whose interests may be
affected by the application of a carbon maintenance obligation.

3.55
In relation to an area of Torrens system land, all legal estate or
interests registered under a Torrens system of registration are
‘eligible interests’. Other ‘eligible
interests’ are mortgages or charges over other eligible
interests where those mortgages or charges are registered under the
Torrens land title system [Part 3, Division 9, clause
44(3)(b)] .

3.56
In relation to an area of Crown land that is not Torrens system
land, the Crown Lands Minister of the state or territory is taken
to hold an eligible interest with respect to an area of land,
unless the area is exclusive possession native title land
[Part 3, Division 9, clause
45(2)] . Provisions enabling the
Minister to delegate the power to consent are explained in Chapter
14 of this explanatory memorandum.

3.57
Other eligible interests in Crown land that is not Torrens system
land are legal estates or interests granted by the Crown or created
under a law of the Commonwealth, a state or a territory, or other
estates or interests which were derived from those estates or
interests [Part 3, Division 9, clause
45(3)] . A mortgagee or charge of those
legal estates or interests is also an ‘eligible
interest’ [Part 3, Division 9, clause
45(4)] .

3.58
The need to obtain the consent of eligible interest holders creates
an opportunity for negotiation between the person who would obtain
a direct benefit under the scheme (i.e. the carbon sequestration
right holder) and those other interest holders.

3.59
For example:

Craig is a farmer
who has the freehold in an area of land. Five years ago he granted
a lease over the land for a certain price.

Amy, the lessee
(who holds the carbon sequestration right), wants to bring an
offsets project on the leased land into the offsets scheme (by
having it declared to be an ‘eligible offsets
project’).

Amy needs to
obtain Craig’s consent to do this. As Craig could potentially
become subject to the carbon maintenance obligation, Craig might
refuse to consent to this. Alternatively, Craig might give consent
in return for a fixed sum, or a proportion of any ACCUs that might
be issued to Amy for the offsets project.

Variation of a project
declaration

Changes to the project
area

3.60
Project proponents may apply to the Administrator to add areas of
land to or remove areas of land from a project [Part 3, Division 3, clause 29(1) and
(2)] .

3.61
It is intended that before adding areas to a project, the
Administrator would need to be satisfied that the areas meet the
same requirements as those applicable to the original project area.
The regulations may therefore provide for the applicants to have
obtained the consent of other interests in the project area and to
provide a statement of consistency with the relevant natural
resource management plan [Part 3, Division 3, clause 29(3)(f) and
(h)] .

3.62
The regulations may make provision for a person to issue a
certificate of entitlement in relation to the application
[Part 3, Division 3, clause
29(3)(g)] . For example, the Crown
might be required to issue a certificate of consent for a
sequestration project.

3.63
For example:

Farmer Alan has
planted trees along some of his fences. His son has been studying
carbon markets at university, and gets the trees approved as a
sequestration projects.

Farmer Alan finds
that the trees help to reduce erosion and have a positive impact on
the productivity of the adjacent land. He wants to add more trees
to his abatement project. He provides the Administrator with
similar documentation to that provided for the original
project. Amongst other things, this describes the new area,
indicates that it is being undertaken in accordance with the same
methodology and demonstrates that he owns the land. The
Administrator approves the addition of land to his project and
issues a varied project declaration to reflect
this.

Farmer Alan
decides to sell part of his farm to a neighbour. The neighbour
wants to buy Alan’s land without taking on the offsets
project

Farmer Alan
applies to the Administrator to reduce the project area. He buys
and hands over to the Administrator the number of ACCUs issued for
the part of the project he wants to get rid of. The Administrator
approves the removal of land from his project and issues a varied
project declaration to reflect this.

Restructure of
projects

3.64
Project areas may transfer between projects. This will increase the
flexibility of the scheme.

3.65
To achieve this outcome, the bill allows for the regulations to
adjust the calculation of the unit entitlement, the calculation of
the number of ACCUs, and the duration of the crediting period in
respect of both projects involved in the transaction.

3.66
A transfer only occurs if an area is removed from one project and
added to another project or turned into a new, stand-alone project
[Part 3, Division 13, clause
57] (see also voluntary automatic
cancellation regime Chapter 9 Crediting).

3.67
If the area that is being moved to another project or turned into a
new, stand-alone project is subject to the voluntary automatic
cancellation regime the new or receiving project must also be
subject to that regime [Part 3, Division 13, clause
58] .

3.68
A determination under 57(2) is not of a legislative character and
is therefore not within the meaning of section 5 of the
Legislative Instruments Act
2003 [Part 3, Division 13, clause
57(8)] . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required.

Changes to the project
proponent

3.69
The project proponent can apply to the Administrator to change the
project proponent listed in the project declaration [Part 3, Division 3, clause 30(1) and
(2)] . This would need to occur to
reflect a change in the ownership of a project.

3.70
The regulations may empower the Administrator to require the
applicant to provide security to the Commonwealth to cover any
potential relinquishment obligation [Part 3, Division 3, clause
30(3)(i)] . Security could take the
form of a bank guarantee for the amount of the potential
relinquishment obligation. This is to address the risk that
sequestration projects could be transferred to people who might
reverse the carbon stores and be unable to meet relinquishment
obligations if this occurred. If this were to occur, the
Administrator would not be able to recover ACCUs for lost carbon
stores.

3.71
The varied project declaration applies from the time it is made or,
if the applicant agrees, an earlier specified date [Part 3, Division 3, clause
30(7)] . This is to enable the
declaration to reflect the date on which the project transfers from
the original to the new project proponent.

3.72
A determination made under this section is not a legislative
instrument [Part 3, Division 3, clause
30(8)] . The determination is not of a
legislative character and is therefore not within the meaning of
section 5 of the Legislative
Instruments Act 2003 . The provision is included to
indicate that an exemption from the Legislative Instruments Act 2003 is
not sought or required.

Revocation of a project
declaration

3.74
A project proponent can request that the Administrator revoke a
project declaration. This is described in Chapter 6 of this
explanatory memorandum on Permanence arrangements for sequestration
projects.

3.75
The Administrator will also have the power to revoke a project
declaration unilaterally [Part 3, Division 4, subdivision
B] .

3.76
The regulations may make provision for the Administrator to revoke
a project declaration in the following circumstances:

â¢
if the declaration has been made conditional on all regulatory
approvals having been obtained prior to the end of the first
crediting period and this condition is not met [Part 3, Division 4, clause 34(1) and
(2)] .

â¢
If the project does not meet an eligibility requirement specified
for the project [Part 3, Division 4, clause 35(1)
and (2)] [Part 7, Division 3, clause
89(1)(c)(i)] . This could include, for
example, that the project proponent for a sequestration project no
longer holds the carbon sequestration right.

â¢
If the project proponent ceases to be an offsets entity and if,
after 90 days, the person that is the project proponent is not a
recognised offsets entity [Part 3, Division 4, clause 36(1) and (2)] [Part
7, Division 3, clause 89(1)(c)(ii)] .
This provision gives a project proponent that ceases to be a
recognised offsets entity 90 days during which to sell or
otherwise transfer the project to someone who can participate in
the scheme.

â¢
If the person who was the project proponent loses the legal right
to carry out the project and, if after 90 days, the new project
proponent is not a recognised entity [Part 3, Division 4, clause 37(1) and (2)] [Part
7, Division 3, clause 89(1)(c)(iii)] .
The effect of this provision is to allow a person that buys a
project 90 days to become a recognised offsets entity.

â¢
If false or misleading information was given to the Administrator
in an application, in connection with an application, in an offsets
report or in a notification [Part 3, Division 4, clause 38(1) and (2)] [Part
7, Division 3, clause
89(1)(c)(iv)] .

â¢
Where there are multiple project proponents, the project may be
revoked where the Administrator is not provided with a nominee
within 90 days [Part 10, Division 3, clause 139(1) and (2)]
[Part 7, Division 3, clause
89(1)(c)(v)] . Before a project is
revoked, the regulations must require that the Administrator
consult with the multiple project proponents [Part 10, Division 3, clause
139(3)] .

â¢
The Administrator must not revoke the project declaration unless it
is satisfied that the conditions outlined above have, in fact, been
met. In other words, the Administrator will have discretion in
relation to project revocations.

3.77
The requirements for relinquishing ACCUs when a project declaration
is revoked by the Administrator are described in Chapter 10 of this
explanatory memorandum.

3.78
To facilitate the exercise of this discretion, the regulations made
in relation to project revocations, for whatever reason, must
require the Administrator to consult with the project proponent
[Part 3, Division 4, clause 34(3), 35(3), 36(3)
and 38(3)] . This is to provide the
project proponent or new owner of a project the opportunity to
rectify the situation and to ensure any mitigating circumstances
are identified.

3.79
The regulations must provide that if a project declaration is
varied the Administrator must give a copy of the variation to the
project proponents and the relevant land registration official
[Part 3, Division 4, clause 34(4), 35(4), 36(4),
37(4) and 38(4)] .

Transition of offsets projects from other
schemes

3.80
The bill enables permanence obligations for sequestration projects
that were created under other specified offsets schemes, such as
the Greenhouse Gas Reduction Scheme and Greenhouse Friendly, to be
enforced through the Carbon Farming Initiative scheme, thereby
removing a barrier to winding up monitoring requirements under
these schemes.

3.81
An existing project under a specified offsets scheme could only be
transferred into this scheme if there is an applicable
methodology.

3.82
A proponent wishing to transfer an existing project into this
scheme would request a determination that specifies the number of
credits issued for the project under the other offsets scheme
[Part 7, Division 4, clause
92] .

3.83
This number would be added to the maximum number of credits that
have to be relinquished if, for example, the project is later
revoked or the carbon storage is reversed [Part 7, Division 4, clause
95] . This will ensure that credits
issued under previous schemes will continue to represent permanent
abatement.

3.84
It is intended that the Administrator would seek advice from the
administrators of the other offset schemes on the number of credits
issued for the transitioning project.

3.85
The Administrator will only make a determination if the
Administrator is satisfied that the project areas were credited
under another offset scheme [Part 7, Division 4, clause
95(3)] . Such a determination is
not of a legislative character and is therefore not within the
meaning of section 5 of the Legislative Instruments Act 2003 .
The provision is included to indicate that an exemption from the
Legislative Instruments Act is not sought or required [Part 7, Division 4, clause
95(6)] .

3.86
The Administrator must comply with the regulations in making a
determination [Part 7, Division 4, clause
95(4)] .

3.87
The Administrator must provide reasons if the Administrator refuses
to make a determination [Part 7, Division 4, clause
95(5)] .

3.88
A request for determination can only be for two years after scheme
commencement [Part 7, Division 4, clause
92(2)] . A time limit is
appropriate given that these are transitional arrangements designed
to facilitate the winding up of administrative and monitoring
requirements for transitioning sequestration projects under other
offset schemes.

3.89
The request must be in a form approved by the Administrator and be
accompanied by such information and documents as specified in the
regulations [Part 7, Division 4, clause
93] .

3.90
The Administrator may by written notice require an applicant to
provide additional information that the Administrator considers
necessary to make a decision on an application [Part 7, Division 4, clause
94(1)] . Where that information is not
provided as requested, the Administrator may refuse to consider or
take any further action in relation to an application [Part 7, Division 4, clause
94(2)] .

Outline of chapter

4.1
This chapter explains how holders of Aboriginal and Torres Strait
Islander land can participate in this scheme.

4.2
The chapter should be read in conjunction with other chapters of
this explanatory memorandum, in particular chapter 3 on project
declarations.

4.3
The relevant provisions are contained in Parts 1, 3, 4 and 10 of
the bill.

Context

4.4
Aboriginal and Torres Strait Islander land is often held communally
and differently to other forms of land tenure.

4.5
This could mean, without special provision, that opportunities for
participation by Aboriginal and Torres Strait Islander people would
be more limited than for other land holders.

4.6
The Government is committed to facilitating Aboriginal and Torres
Strait Islander participation in carbon markets and the bill
contains a number of provisions to give effect to this
objective.

Explanation of new law

4.7
Aboriginal and Torres Strait Islander held land is classified as
land rights land or native title land.

4.8
Land rights land is defined according to the usual definition which
covers land granted or vested under Aboriginal and Torres Strait
Islander specific legislation or held or reserved expressly for
Aboriginal and Torres Strait Islander people [Part 1, clause
5] .

4.9
In general, land rights land is a legal interest in land, may be
registered on title systems, and is managed by a single legal
entity. This means that land rights land holders will generally be
able to participate in a similar manner to other interest holders.
Therefore no specific provisions are made for land rights land with
respect to project proponents or carbon sequestration rights.
However, because of the way land rights land is administered, some
provisions have been made with respect to holding eligible
interests as detailed below.

4.10
Native title land is defined according to entries on the National
Native Title Register specifying that native title exists in
relation to the area [Part 1, clause 5] .
This means there must be a determination of native title before
native title holders could undertake a project on their land.
Native title and native title holder have the same meaning as in
the Native Title Act
1993 [Part 1, clause
5] . This means that native title
holder means the registered native title body corporate where the
native title is held on trust. In this explanatory memorandum, the
term ‘common law holders’ is used, similar to the
Native Title Act
1993 , to indicate the Aboriginal and Torres Strait
Islander holders of native title where appropriate.

4.11
The following explanations on project proponent, carbon
sequestration rights and eligible interests principally relate to
native title land.

Project proponent

4.12
One of the scheme design principles is that the project proponent
must hold the relevant rights in the land. While an agent can
fulfil reporting obligations, the project proponent must hold the
legal right to carry out the project and, in the case of
sequestration projects, the carbon sequestration right [Part 3, Division 2, clause 27(4)(e)] [Part 1,
clause 5, definition of ‘project
proponent’] .

4.13
This creates a problem where common law holders have not nominated
a prescribed body corporate to hold the native title on trust. In
this case, the common law holders will continue to hold the rights
in land and would need to be the project proponent under the
scheme, notwithstanding they have an agent registered native title
body corporate.

4.14
It would not be practical for a group of common law holders to
participate in the scheme as project proponents for two
reasons.

4.15
First, to ensure the integrity of the scheme, every project
proponent must be a ‘recognised offsets entity’. The
main criterion for recognition is applying the ‘fit and
proper person’ test to each member of an applicant group
[Part 4, clause 64(3)] [Part 10, Division 2,
clause 135(1)] . Applying this test to
a large, imprecise, and changing group of common law holders would
not be feasible for either the common law holders or the
Administrator.

4.16
Second, because the project proponent is responsible for fulfilling
all obligations under the scheme, the common law holders would be
responsible jointly and severally for any penalties and compliance
action. Even though provisions for ‘nominees’ for
multiple project proponents could ease scheme administration
issues, compliance action for the scheme Administrator would be
more complex and common law holders could be individually subject
to penalties under this bill.

4.17
To address these difficulties, the bill ensures that where projects
are undertaken by native title holders, the relevant participant in
the scheme must be the registered native title body corporate. The
scheme achieves this by providing that the registered native title
body corporate will be taken to be the project proponent,
regardless of whether the native title is held on trust or not
[Part 3, Division 10, clause
46] .

Right to carry out the project and carbon
sequestration

4.18
To be eligible to apply for a project, native title holders must
hold the legal right to carry out the project and, in the case of
sequestration projects, the carbon sequestration right [Part 1, clause
5] .

4.19
It is not clear whether native title could include a right to
carbon sequestration. This is because native title rights are
sourced from traditional laws and customs, which may not include
the recently identified right to benefit from carbon stored in the
land. As a result, native title holders may need to seek a court
determination (or a consent determination) to confirm their carbon
sequestration right before they could participate in the scheme.
This is likely to be difficult, costly and time consuming and any
court decision would be unlikely to have universal application to
other native title holders. Demonstrating the legal right to carry
out a project may present a similar hurdle.

4.20
To address this barrier, the bill will take the registered native
title body corporate to be the project proponent where the project
area is determined exclusive possession native title land, as long
as:

â¢
there is a registered native title body corporate for the project
area; and

â¢
no other person (except for the Crown) holds the carbon right or
the legal right to carry out the project [Part 3, Division 10, clause
46].

4.21
This means that the registered native title body corporate would be
taken to be the project proponent without the actual conferral or
grant of rights (as noted above, the project proponent must have
the right to carbon sequestration and the legal right to carry out
the project) [Part 1, clause
5] .

4.22
The deemed status could occur even if the exclusive possession
native title is overlayed by another interest (and the
non-extinguishment principle applied - see section 238 of the
Native Title Act
1993 ). In this case, the registered native title body
corporate would need to obtain the consent of the other interest
holder before any project could proceed.

4.23
Because no rights are actually conferred, and thus there is no
effect on the native title rights, this approach is not a future
act under the Native Title Act
1993 and means no further process is required to
‘deem’ project proponent status on the registered
native title body corporate.

4.24
Consistent with the objective of treating Aboriginal and
Torres Strait Islander land similar to freehold where appropriate,
the bill also removes the need for the Crown to provide their
consent to the project [Part 3, Division 9, clause
45(2)] and certify that the registered
native title body corporate holds the carbon sequestration right
[Part 3, Division 2, clause 27(4)(h) and
(i)] . The Crown would normally have
these functions on Crown land.

4.25
Similarly, where land rights land is equivalent to freehold,
relevant Ministers will not hold an eligible interest, ensuring
that land rights land holders can also undertake projects without
reference to Ministers. Where these cases occur on Crown land,
there is a requirement for the Administrator to notify the relevant
Crown lands Minister to ensure the state or territory is aware of
the project [Part 3, Division 10, clause 47]
[Part 3, Division 11, clause 52] .

4.26
This approach would provide holders of exclusive possession native
title a clear and direct access to participate in the scheme
similar to other land owners.

4.27
For example, this would provide a clear pathway for exclusive
possession native title holders to undertake:

â¢
a reforestation sequestration project without needing to show the
legal right to carry out the project or the carbon sequestration
right, or having to obtain a Crown consent or certification; or

â¢
a savannah fire management emissions avoidance project without
needing to show the legal right to carry out the project.

4.28
The bill does not provide any special treatment for non-exclusive
native title. This is because non-exclusive native title interests,
such as native title access or usage rights, would be less likely
to include carbon sequestration rights, and are more akin to
non-freehold interests such as an easement or a licence. Easements
and licences do not confer carbon sequestration rights which would
give a project proponent the basis to undertake projects.

4.29
For example

Native title is
determined on Crown land, held on trust by Littletree registered
native title body corporate and recorded on the National Native
Title Register.

Before applying
for a project, Littletree must register as a recognised offsets
entity by passing the ‘fit and proper person’ test.
Littletree will be responsible for fulfilling all the scheme
obligations, including reporting on the project.

Because the native
title amounts to exclusive possession, Littletree can apply for a
reforestation sequestration project without having to show the
legal right to carry out the project or the carbon sequestration
right.

The Crown Minister
does not hold an eligible interest and does not need to provide
consent nor certify that the applicant holds the carbon
right.

Littletree enters
into an agreement with Greenfoot Pty Ltd to manage the
reforestation project.

Any scheme units
will be issued to Littletree and held on trust for the benefit of
the common law holders.

Littletree must
maintain the project for 100 years. If not, because the project is
cancelled, for example, due to false or misleading information
provided in a report, a carbon maintenance obligation may be placed
on the land. This will prevent the common law holders from reducing
the amount of carbon stored in the land.

Right to carry out project and carbon a part of
native title

4.30
Separate to the deeming provision above, a native title holder may
still hold the carbon sequestration right and the legal right to
carry out the project as part of native title, for example, because
this right is recognised in a consent determination [Part 3, Division 8, clause
43(9)] . This may apply to exclusive
possession native title or non-exclusive native title.

4.31
In this situation, as explained above, the registered native title
body corporate would be taken to be the project proponent for any
project application. This approach would meet the dual purposes
of:

â¢
recognising a pathway for participation by native title holders as
of right; and

â¢
ensuring scheme administration requirements can be met by utilising
the registered native title bodies corporate.

Indigenous land use
agreements

4.32
State legislation generally allows for carbon rights to be
transferred between parties separate to the land title.

4.33
Native title cannot be transferred, but to provide flexibility, the
bill recognises the situation where a carbon right may be exercised
by another party under an indigenous land use agreement
[Part 3, Division 8, clause
43(10)] . This recognition would allow
a company or other people to undertake a project on native title
land.

Special native title
account

4.34
Where the registered native title body corporate is taken to be the
project proponent, the bill requires that any units issued to this
kind of projects must be held in a special native title account on
trust for the common law holders. This will ensure that the
benefits of any project accrue for the common law holders.

4.35
Specifically, whenever a registered native title body corporate is
taken to be the project proponent:

â¢
the registered native title body corporate may request the
Administrator to open an account in the name of the
registered native title body corporate but designated as a special
native title account [Part 3, Division 10, clause
48];

â¢
the Administrator may only issue units to a registered native title
body corporate into a special native title account [Part 3, Division 10, clause
49];

â¢
any units in a special native title account are held in trust for
the common law holders [Part 3, Division 10, clause
50] .

4.36
Under this mechanism, a registered native title body corporate
would undertake the project and receive the ACCUs, but the ACCUs
would be held on trust for the native title holders. If the project
does not have a special native title account, the Administrator
could not issue ACCUs for the project.

Project decisions

4.37
It is intended that the common law holders will be able to direct
projects decisions, in the same way as under the Native Title Act 1993 .

4.38
The bill provides that the regulations may allow for a registered
native title body corporate to consult, and act in accordance with
the directions of, the common law holders in relation to anything
done by the registered native title body corporate under the bill
[Part 3, Division 10, clause
51] . This mirrors section 58 of the
Native Title Act
1993 .

4.39
It is proposed that the regulations would follow the same standard
as contained in the Native Title
(Prescribed Body Corporate) Regulations 1999 , made
pursuant to section 58 of the Native Title Act 1993 , that all
affected common law holders must consent to any decisions by the
registered native title body corporate affecting native title.

4.40
Ensuring this standard applies to project decisions will mean that
common law holders will remain in control of projects and any
possible conflict between the ‘deemed’ status and
rights held under native title will be mediated by reference to the
common law holders.

Beneficial nature of
provisions

4.41
The Government considers that the approach outlined in relation to
project proponents and carbon and project rights is beneficial for
the following reasons:

â¢
all native title holders may participate in the scheme;

â¢
exclusive possession native title holders do not have to establish
that native title includes rights to carry out projects and
carbon;

â¢
common law holders do not have to undergo the ‘fit and proper
person’ test for scheme registration;

â¢
common law holders would not be individually responsible for any
liabilities under the scheme; and

â¢
any ACCUs are protected on trust for common law holders.

Eligible interests

4.42
Rather than undertaking projects, interest holders can also
participate in the scheme by providing their consent to
sequestration projects undertaken by others. This option is usually
available to interests which do not include the rights to carry out
the project or carbon sequestration. This creates an opportunity
for negotiation between the project proponent, who would obtain
direct benefit, and other interest holders.

4.43
The consent of relevant interest holders is required because an
area of project land can become subject to a carbon maintenance
obligation (explained in chapter 6 of the explanatory memorandum).
These scheme obligations may affect interests in the land, and
therefore, it is important to ensure that all persons whose
interests may be affected have agreed to the land being brought
into the scheme.

4.44
The bill requires that each person with an ‘eligible
interest’ must give consent to an application for a
sequestration project [Part 3, Division 2, clause
27(4)(k)] . Eligible interest holders
on Torrens system land include, for example, registered interests,
mortgagees, easement holders and owners of leased land, but would
not include unregistered interests (eg a licence) [Part 3, Division 9, clause
44] . On Crown land legal interests or
estates derived from the Crown are recognised as eligible interests
[Part 3, Division 9, clause
45(3)].

Land Rights Land

4.45 Interests in land rights
land will be an eligible interest similar to other land interests.
Therefore, the holders of land rights land will generally need to
consent to projects on their land where others are undertaking
projects.

4.46 In addition, where the land
rights land is less than a freehold, the Minister responsible for
that land rights land will also hold an eligible interest. It is
appropriate that the responsible Minister has a say in long term
decisions where the interest is less than a freehold. Specifically,
where the land rights land is a lease, or is held by the
Commonwealth or a Commonwealth statutory authority, the Minister
who administers the relevant legislation is taken to hold an
eligible interest and must provide their
consent [Part 3, Division 9, clause 44(6)] [Part 3,
Division 9, clause 45(6)] . If the interest is less
than freehold and is held under state or territory legislation, the
relevant Crown lands Minister will hold an eligible
interest [Part 3, Division 9, clause 44(7)] [Part 3,
Division 9, clause 45(7)] .

4.47 For
example

Bigtree
Land Trust was created under land rights legislation. Before
applying for a project, Bigtree must register as a recognised
offsets entity by passing the ‘fit and proper person’
test. Bigtree will be responsible for fulfilling all the scheme
obligations including reporting on the
project.

Bigtree
applies for a native forest protection project. As the land
interest is a freehold, neither the Minister administering the land
rights legislation nor the Crown lands Minister hold an eligible
interest and do not therefore need to consent to or certify the
project.

Bigtree
appoints Greenfoot Pty Ltd to implement and manage the project and
act as agent to fulfil reporting requirements. Any ACCUs for
avoiding native forest conversion or increasing the sequestration
will be issued to Bigtree on behalf of the Aboriginal
landowners.

The
project must maintain scheme obligations for 100 years. If this
does not occur, for example, because Greenfoot harvests the forest,
a carbon maintenance obligation may be placed on the land. This
will prevent the Bigtree landowners from reducing the amount of
carbon stored in the land.

Native
Title

4.48
The situation regarding native title is complex.

4.49
Native title covers a wide spectrum of interests, including
exclusive possession, use and access rights and claimed rights.
When these interests are affected by ‘future acts’, the
Native Title Act
1993 sets out which procedural rights, if any, apply. Future acts
are only valid if the steps in the Native Title Act 1993 are
followed.

4.50
Projects under the scheme are unlikely to be future acts, because
projects must be based on existing rights, unless a carbon
maintenance obligation is applied, as the obligation would operate
to restrict activities which would reduce the level of carbon
stored in the land.

4.51
Given the practical and legal complexity of the interaction of the
scheme with native title, the Government intends to undertake
further consultation with a broad range of stakeholders and
complete detailed legal analysis before reflecting a considered
approach in amendments to the bill.

4.52
The approach to native title is intended to be consistent with the
Native Title Act 1993
and the Racial Discrimination
Act 1975 . To reflect this intention, and to ensure that
native title continues to be protected, the scheme contains
statements that the operation of the Native Title Act 1993 and
Racial Discrimination Act
1975 are not affected [Part 28, clause 301 and
302] .

4.53
The regulations may make provision for a registered native title
body corporate to act as agent for the common law holders in
relation to eligible interests [Part 3, Division 10, clause
51(2)] . This is necessary if the
common law holders, rather than the registered native title body
corporate, hold eligible interests under amendments to the
bill.

4.54
If common law holders do provide a consent to a project in an
indigenous land use agreement, the details of the agreement must
not be removed from the Register of Indigenous Land Use Agreements
under the Native Title Act
1993 without the written consent of the Administrator
[Part 3, Division 2, clause 27(19)] [Part 3,
Division 2, clause 29(6)]. If an
agreement is removed from the Register, this may undermine the
basis of the consent provided. An alternative arrangement may need
to be in place before the Administrator could provide written
consent to the removal.

5.5
In designing this scheme, the Government has drawn on the
experience of other international offsets schemes including the
Clean Development Mechanism under the Kyoto Protocol, the Voluntary
Carbon Standard, the Chicago Climate Exchange and built on
Australia’s decade-long practical experience in implementing
offsets programs such as the Greenhouse Friendly and the New South
Wales and Australian Capital Territory Greenhouse Gas Reduction
Scheme.

5.6
The scheme is thus focused on crediting genuine and verifiable
abatement which is permanent and additional to business as usual or
regulatory requirements. This is given effect by requiring
methodology determinations to meet internationally consistent
integrity standards.

5.7
The bill provides for the assessment of proposals for methodology
determinations by an independent expert panel. The process for
making methodology determinations is transparent and promotes
public accountability.

5.8
Offsets methodologies will be issued as determinations issued by
the Minister as legislative instruments.

Explanation of new law

Assessment of
methodologies

5.9
A methodology determination is made by the Minister. The
determination is a legislative instrument [Part 9, Division 2, clause
106(1)] . This provision is included to
assist readers, as the instrument is a legislative instrument
within the meaning of section 5 of the Legislative Instruments Act 2003 ,
and therefore the procedures in that Act, for example,
parliamentary disallowance, will apply.

5.10
The methodology determination may be expressed to apply to a
specified class of offsets projects [Part 9, Division 2, clause
106(1)(a)] . In accordance with the
Legislative Instruments Act
2003 , where the bill indicates that the Minister may
specify that a methodology determination applies to a particular
kind of project, the Minister may identify more than one particular
kind or class of project [Part 9, Division 2, clause
106(7)] .

5.11
The Minister must not make a methodology determination unless a
methodology is assessed and endorsed by the Domestic Offsets
Integrity Committee (DOIC) [Part 9, Division 2, clause
106(4)(b)] . Further information on the
establishment, structure and functions of the DOIC is contained in
chapter 11 of this explanatory memorandum.

5.12
The Minister can also seek advice about methodologies from other
people or organisations, such as the Department of Climate Change
and Energy Efficiency [Part 9, Division 2, clause
106(6)] .

5.13
The Minister must not make a methodology determination unless it
has the specified characteristics and meets the integrity standards
contained in the bill (see below) [Part 9, Division 2, clause
106(4)(c)] .

5.14
If the Minister decides not to approve a methodology which has been
endorsed by the DOIC, the Minister must give the methodology
applicant reasons for the decision [Part 9, Division 2, clause
106(5)].

5.15
The methodology determination may apply, adopt, or incorporate with
or without modification, a matter contained in another instrument
as it exists from time to time, despite subsection 14(2) of the
Legislative Instruments Act
2003. The instrument referred to must be published on
the Administrator’s website unless this would infringe
copyright [Part 9, Division 2, clause
106(8), (9) and (10)] .

Diagram 1.1 Methodology assessment
process

Application process

5.16
A person may apply to the DOIC for the endorsement of a proposal
for a methodology determination [Part 9, Division 2, clause
108] . The person does not have to be a
recognised offset entity. For the purposes of this bill, a person
includes an individual, a body corporate, a trust, a corporation
sole, a body politic and a local governing body [Part 1, clause 5, definition of
‘person’] .

5.17
In order for the draft methodology to be assessed, an applicant
will have to propose their methodology in the required form, along
with any other required documents and information [Part 9, Division 2, clause 109(1)(a) to
(e)] .

5.18
Applications for assessment of draft methodologies will need to
include supporting evidence to enable the DOIC to assess whether
the proposed methodology is consistent with the offsets integrity
standards set out in clause 133 and any other requirements
specified in the methodology guidelines. The Department has
published on its website interim guidelines for submitting a
methodology proposal and provided a template for this.

5.19
Where appropriate, the Administrator will take a light-handed
approach to documentation to reduce administrative costs for the
project proponent, for example, the Administrator may provide for
statements to be verified by statutory declaration [Part 9, Division 2, clause
109(2)] .

5.20
The regulations may specify an application fee [Part 9, Division 2, clause
109(1)(f)] . The purpose of the fee is
to enable the Administrator to recover costs associated with
processing the application [Part 9, Division 2, clause
109(3)] .

5.21
The DOIC may be able to request further information from the
applicant if it has any questions on the draft methodology
[Part 9, Division 2, clause
110(1)] . The DOIC can refuse to take
further action to assess the application if this information is not
provided as requested [Part 9, Division 2, clause
110(2)] .

5.22
An application can be withdrawn at any time before the DOIC makes a
decision and doing so does not prevent the applicant from making a
fresh submission [Part 9, Division 2, clause
111(1) and (2)] . If this occurs, any
fees paid in relation to the application would be refunded
[Part 9, Division 2, clause
111(3)] . This provision recognises
that it would normally be preferable for the DOIC to advise the
applicant of deficiencies in their application and to allow the
applicant to withdraw and re-submit an improved application without
cost, rather than proceeding to reject the application.

5.23
The DOIC will consider the application and then issue a written
statement indicating whether or not it endorses the proposal
[Part 9, Division 2, clause
112(2)] . If the DOIC endorses the
proposal, it will advise the Minister of this as soon as practical
[Part 9, Division 2, clause
113] .

5.24
An endorsement of a proposal is not of a legislative character and
is therefore not within the meaning of section 5 of the
Legislative Instruments
Act 2003 [Part 9, Division 2, clause
112(15)] . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required.

5.25
The DOIC must not endorse the application unless it is satisfied
that the methodology has the requisite characteristics and meets
the integrity standards described below.

5.26
Prior to endorsing a methodology, the DOIC must undertake public
consultation on the draft methodology, including supporting
evidence. The application and supporting evidence will be published
on the Department of Climate Change and Energy Efficiency website
and public comments invited for a minimum period of 40 days
[Part 9, Division 2, clause 112(4), (5) and
(6)] .

5.27
The applicant can request that the DOIC not publish some or all of
the supporting information to a methodology [Part 9, Division 2, clause
112(7)] . For example, applicants may
wish to keep commercially sensitive information out of the public
domain.

5.28
The request must be in writing in an approved form [Part 9, Division 2, clause
112(8)] .

5.29
The DOIC will not be able to undertake a full assessment of a
methodology if the methodology applicant seeks to prevent or unduly
restrict public dissemination or use. For this reason, the DOIC
must not endorse the methodology if the applicant refuses to allow
information to be published, and the DOIC considers that this
information is necessary to allow the public to make well informed
submissions on the methodology proposal [Part 9, Division 2, clause 112(4) and
(9)] .

5.30
Submissions on draft methodologies will also be published on the
Department of Climate Change and Energy Efficiency website and
provided to the applicant. This will occur unless the person making
the submission requests otherwise, for example, because the
submission contains commercially sensitive information [Part 9, Division 2, clause 112(10) and
(11)] . The request must be in writing
and in the approved form [Part 9, Division 2, clause
112(12)] .

5.31
As soon as practical after making a decision, the DOIC will advise
the methodology applicant and provide reasons if it decides not to
endorse a methodology [Part 9, Division 2, clause
112(13)] .

5.32
Approved methodologies will be made into methodology determinations
and will be legislative instruments. They will be published on the
Federal Register of Legislative Instruments and must be tabled
before Parliament. They are subject to Parliamentary
disallowance.

Characteristics of a methodology
determination

5.34
Methodology determinations must apply to specified kinds of offsets
projects [Part 9, Division 2, clause
106(1)(a)] . This will ensure that
methodologies can be applied by other project proponents in
comparable circumstances. Ensuring that methodologies can be used
by anyone with a similar project will reduce participation costs.
Further, the scheme will be less complex and costly to run if it
involves the administration of fewer, more generic
methodologies.

5.35
The type of project cannot be defined by reference to a state or
part of a state [Part 9, Division 2, clause
106(4)(d)] . This is because the
Australian Constitution does not allow Commonwealth legislation to
discriminate between states.

5.36
Methodology determinations for projects other than native forest
protection projects will contain methods for estimating project
abatement over the reporting period [Part 9, Division 2, clause
106(1)(c)] . The Administrator would
normally issue ACCUs equivalent to the reported abatement.

5.37
Methodologies for projects to protect native forests will contain
methods for estimating the total amount of carbon stored in the
forest [Part 9, Division 2, clause
106(1)(d)] . Projects to protect
existing native forest differ from most other types of abatement
activity in that the abatement occurs once - at the time the
forest is protected rather than cleared or clear felled. Issuing
ACCUs for the total carbon storage at the end of the first
reporting period risks flooding the carbon market and reducing the
price of carbon. For this reason, ACCUs will be issued on a pro
rata basis over 20 years. This approach will also reduce the
risks that forests will be cleared after all the ACCUs have been
issued, and would provide a revenue stream to fund ongoing
management of the forest.

5.38
Estimation methods will need to include a baseline calculation for
the project [Part 9, Division 2, clause
107] . This is because reductions in
emissions or increases in sequestration must be estimated relative
to a baseline that represents the emissions that would have
occurred in the absence of the project. This provision is not
intended to prevent methodologies from including standardised
baselines that apply generically to projects within an industry or
particular environmental conditions. More information about
baselines and baseline setting is provided in the Methodology
Guidelines, which is available on the Department of Climate Change
and Energy Efficiency website.

5.39
Methodology determinations may refer to standards or procedures
contained in other legislation, for example, standards contained in
the National Greenhouse and Energy Reporting (Measurement)
Determination 2008, made under the National Greenhouse and Energy Reporting Act
2007 [Part 9, Division 2, clause
106(8)] . The DOIC would need to ensure
that any such auxiliary rules or procedures can be located easily
by publishing them on their website, unless this would infringe
copyright [Part 9, Division 2, clause
106(10) and (11)] .

Integrity standards

Additionality

5.43
Methodology determinations must relate to the kinds of projects
that pass the additionality test [Part 9, Division 3, clause
133(1)(a)] . The purpose of the
additionality test is to ensure that credits are only issued for
abatement that would not normally have occurred and, therefore,
provides a genuine environmental benefit.

5.44
The Government’s intention is that this test will enable
crediting of activities that improve agricultural productivity or
have environmental co-benefits, but which have not been widely
adopted.

5.45
An offsets project is taken to pass the additionality test if it
relates to an activity or kind of project that is listed in the
regulations [Part 3, Division 6, clause
41(1)(a)] and is not required to be
carried out under state or territory law [Part 3, Division 6, clause
41(1)(b)] . In other words, the
regulations will list activities or types of projects which are
additional. This is referred to as a ‘positive
list’.

5.46
In accordance with the Legislative Instruments Act 2003 ,
where the bill indicates that the regulations may specify an
activity or kind of project, the regulations may identify more than
one particular kind or class of project [Part 3, Division 6, clause
41(4)] .

5.47
The Minister must obtain the advice of the DOIC as to whether a
particular kind of project should, or should not, be included on
the positive list [Part 3, Division 6, clause
41(2)] .

5.48
The Minister must consider whether carrying out the project is
beyond common practice in the relevant industry or part of an
industry, or in the environment in which the project is to be
carried out [Part 3, Division 6, clause
41(3)(a)] . The Minister may also
consider other matters the Minister considers relevant [Part 3, Division 6, clause
41(3)(e)] .

5.49
The common practice test is intended to provide a streamlined way
of identifying activities that would not normally have occurred in
the absence of this scheme and are therefore genuinely
additional.

5.50
In assessing whether a project is common practice, the Minister
will factor out the impact of the scheme [Part 3, Division 6, clause
41(3)(b)] . This is to clarify that
activities that are common because of the scheme should not fail
the additionality test.

5.51
Common practice is not defined in the legislation. This is to allow
for the application of expert judgement as to what constitutes
common practice in different environments and industry
circumstances. The Government will consult with stakeholders on
approaches to identifying common practice and provide further
guidance.

Measurable and
verifiable

5.52
To ensure the credibility of abatement estimates, the legislation
requires that abatement estimates are measurable and capable of
being verified [Part 9, Division 3, clause
133(1)(b)] .

5.53
The requirement that abatement is measurable precludes methodology
determinations that calculate upfront or simply deem an amount of
abatement for a given activity.

5.54
The requirement that abatement estimates are verifiable means that
the estimation methods, reporting and record-keeping requirements
contained in methodology determinations must be sufficiently
detailed and comprehensive to enable an auditor to ascertain how an
abatement estimate has been obtained and to assure the credibility
of the estimate.

Leakage

5.55
Methodologies must provide for increases in emissions which are the
result of carrying out the project to be deducted from abatement
estimates [Part 9, Division 3, clause
133(1)(e)] . The methodology must
specify how increases in emissions, if any, are to be
estimated.

5.56
This integrity standard is designed to ensure that abatement is not
offsets by increases in emissions as a result of the project.

5.57
Increases in emissions can be the direct result of carrying out the
project and within the control of the project proponent. For
example, soil carbon can be enhanced by increasing use of nitrogen
fertiliser, but there could be increased emissions of nitrous oxide
associated with this activity. The methodology guidelines indicate
that such increases should be accounted for as part of the
project.

5.58
Increases in emissions can also occur as an indirect result of
carrying out the project. For example, de-stocking beef
cattle on one property is likely to lead to increases in stock
numbers on other properties if demand for beef remains unchanged.
These increases are termed ‘leakage’ in the methodology
guidelines.

5.59
The Government recognises that measuring indirect leakage can be
very difficult. The Department of Climate Change and Energy
Efficiency is working with stakeholders to identify streamlined
ways to account for leakage. Streamlined accounting treatments
developed through this process would be incorporated into the
relevant methodology determinations.

Internationally
consistent

5.60
It is important that estimation methodologies meet internationally
recognised accounting standards. This will enable abatement to be
counted towards Australia’s Kyoto target. To give effect to
this, the legislation stipulates that methods should not be
inconsistent with methods applied in compiling the National
Inventory Report [Part 9, Division 3, clause
133(1)(c)] .

5.61
The member of the committee from the Department of Climate Change
and Energy Efficiency will advice whether proposed methodologies
allow abatement to be counted towards Australia’s
international climate change targets in the National Inventory
Report, which are compiled by the Department.

5.62
The intention is not to preclude methodologies that are different
to those currently used to develop Australia’s National
Greenhouse Gas Inventory (NGGI), provided that the resulting data
is of a kind and standard that allows it to be incorporated into
the national accounts.

5.63
The Kyoto Protocol covers the major greenhouse gases that are
produced by human activity. These are the only greenhouse gases
that are included in the National Inventory Report and that can be
included in methodology determinations [Part 1, clause 5, definition of
‘Greenhouse Gas’] [Part 9, Division 3, clause
133(1)(c)] . This will help to ensure
that abatement that is credited under this scheme can be counted
towards Australia’s Kyoto target.

5.64
Estimation methods must provide for these gases to be translated
into their carbon dioxide equivalents [Part 9, Division 2, clause 106(1)(c ) and
(d)] .

Supported by peer-reviewed
science

5.65
The environmental integrity of Australian carbon credit units
(ACCUs) will depend on whether they have scientific
credibility.

5.66
Estimation methods must be supported by relevant science that has
been published in peer-reviewed literature and generally accepted
by the scientific community [Part 9, Division 3, clause
133(1)(d)] . This will preclude
methodologies that would not be recognised as having scientific
credibility.

5.67
It is not the intention that estimation methods should be published
in peer-reviewed literature. Rather, methodologies will incorporate
or apply peer-reviewed methods, models or data.

5.68
It is intended that the DOIC will use expert judgement to assess
whether peer-reviewed science, methods or models have been
correctly and appropriately be applied. In making this
assessment, the DOIC may seek the advice of technical
specialists.

5.69
To avoid doubt, the methods determined under the National Greenhouse and Energy Reporting Act
2007 , which are used to compile the NGGI, are taken to
be consistent with peer-reviewed science. This is because these
methods are subject to international peer review under the
United Nations Framework
Convention on Climate Change . Like scientific
peer-review, this process tests the scientific rigor and ensures
the credibility of estimation methods [Part 9, Division 3, clause
133(6)] .

Accounting for cyclical
variability

5.70
Carbon stored in agricultural soils and some forms of vegetation is
likely to be susceptible to significant cyclical variations,
largely driven by fluctuations in annual average rainfall. These
variations can make it difficult to isolate the impact of changes
in management practices on carbon stocks.

5.71
For this reason, estimation methods for sequestration projects must
provide for estimates to be adjusted to account for significant
variations in carbon stocks that are likely to occur as a result of
climatic cycles [Part 9, Division 3, clause
133(1)(f)] .

5.72
The purpose of such adjustments is to ensure that reported
abatement (and hence crediting) provides an accurate reflection of
the impact of changes in management practices on carbon stocks, as
opposed to the impacts of climatic cycles on those stocks. Unless
such adjustments are made, ACCUs could be issued for temporary
increases in carbon storage, for example, as a result of higher
than average rainfall. By the same token, such adjustments can
avoid the need to hand back ACCUs if carbon stocks are temporarily
reduced.

5.73
Methods of adjustment typically involve some form of averaging or
statistical smoothing. Adjustments can be made to abatement
estimates ex-post. It may also be possible to develop
estimation models that ‘factor out’ natural
variability.

Diagram 1.2 Estimating changes in carbon
storage

5.74
Carbon stores in environmental plantings and permanent carbon sink
forests are unlikely to lose carbon as a result of annual
variations in rainfall, though they may be subject to natural
disturbances such as prolonged drought. Methodologies for these
activities are not expected to include averaging for climatic
variations.

5.75
To provide certainty for project proponents, types of sequestration
projects for which adjustments do not need to be made may be
specified in the regulations [Part 9, Division 3, clause
133(2)] .

5.76
In accordance with the Legislative Instruments Act 2003 ,
where the bill indicates that the regulations may specify types of
project that i do not need to make adjustments for significant
cyclical variation [Part 9, Division 3, clause
133(2)] , the regulations may identify
more than one particular type or class of project [Part 9, Division 3, clause
133(3)] .

Variations of
methodologies

5.77
Methodology determinations may be varied, for example, because
there is new scientific evidence to support refinements to carbon
estimation models [Part 9, Division 2, clause
114(1)] . For example, research
is currently underway into the effects of different management
practices on the growth of environmental plantings. Over time, it
is envisaged that this evidence will be incorporated into some
reforestation methodologies.

5.78
However, a new methodology would be required for different
abatement technologies or management practices.

5.79
Any person may apply to the DOIC for endorsement of a proposal to
vary an existing methodology [Part 9, Division 2, clause
116(1)] .

5.80
This allows someone other than the methodology applicant to propose
changes to methodologies. Note that project proponents can continue
to apply the original methodology for the duration of the crediting
period or can apply the varied methodology.

5.81
The application process for varying a methodology determination,
including the form of application, requests for further information
and withdrawal of the application, is the same as that for applying
for a methodology determination (see above) [Part 9, Division 2, clause 116] [Part 9,
Division 2, clause 117] [Part 9, Division 2, clause 118] [Part 9,
Division 2, clause 119] .

5.82
An endorsement of a variation by the DOIC is not of a legislative
character and is therefore not within the meaning of section 5 of
the Legislative Instruments
Act 2003 [Part 9, Division 2, clause
120(14)] . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required.

5.83
A methodology determination is varied by the Minister through
legislative instrument [Part 9, Division 2, clause
114] . Before making an instrument to
vary a methodology determination, the Minister must have received
advice from the DOIC indicating that it endorses the variation
[Part 9, Division 2, clause 114(2)(b) and clause
120(2)] . The DOIC must provide this
advice to the Minister as soon as practicable after endorsing the
proposal [Part 9, Division 2, clause
121].

5.84
Clause 114(5) clarifies that the making of a legislative instrument
to vary a methodology determination does not limit the application
of 33(3) of the Acts
Interpretation Act 1901 , to other instruments under this
Act [Part 9, Division 2, clause
114(5)] .

5.85
The Minister may seek additional advice from the DOIC or any other
person or body in relation to variation of a methodology
[Part 9, Division 2, clause
114(4)] . For example, the Minister may
seek advice on whether to make a new methodology determination
rather than modify an existing methodology
determination.

5.86
The Minister must, as soon as practical after making a decision
about variation of a methodology determination, notify the
applicant of the decision and the reasons for the decision
[Part 9, Division 2, clause
114(3)] . It is also expected that the
Administrator will notify project proponents applying the original
methodology determination.

5.87
A variation of a methodology comes into effect on the day that the
Minister makes the instrument varying the methodology or, on a
later day if specified in the instrument [Part 9, Division 2, clause
115] .

Duration of methodology
determinations

5.88
A methodology determination takes effect from the time that it is
made or if a later day is specified in the determination - on
that later day [Part 9, Division 2, clause
122(1)(a)] . In other words,
methodologies will apply prospectively.

5.89
However, methodologies that are made before 30 June 2012
may be backdated to 1 July 2010. This is to enable projects that
apply these methodologies to be backdated to
1 July 2010.

5.90
This transitional arrangement is to allow crediting of existing
reforestation and waste projects, such as those approved under the
Australian Government’s Greenhouse Friendly program, to be
backdated to 1 July 2010.

5.91
Unless revoked, the methodology determination will remain in place
until the time specified in the methodology determination or the
legislative instrument lapses [Part 9, Division 2, clause
122(1)(b)] . This creates a trigger for
the Government to review whether the legislative instrument remains
relevant or requires amendment. Legislative instruments lapse
automatically after 10 years.

5.92
The Minister may renew the methodology determination, without
change, if it expires [Part 9, Division 2, clause
122(4)] . Provided that the methodology
is still relevant and useful, and if there are no practical or
scientific grounds for amending the methodology, it is anticipated
that methodology determinations would be renewed when they
expire.

Revocation of
methodologies

5.93
The Minister may make a legislative instrument that revokes a
methodology determination [Part 9, Division 2, clause
123(1)] . Before doing so, the Minister
must first request the advice of the DOIC about whether to do so
[Part 9, Division 2, clause
123(2)] .

5.94
In deciding to revoke a determination, the Minister must consider
any advice given by the DOIC, whether the determination complies
with the offsets integrity standards and any other matters that the
Minister considers relevant [Part 9, Division 2, clause
123(3)] .

5.95
The Minister’s power to revoke a methodology determination
does not affect the application of 33(3) of the Acts Interpretation Act
1901 [Part 9, Division 2, clause
123(4)] . This provision is simply to
assist readers, as this power is not intended to limit the
application of the Acts
Interpretation Act 1901 .

5.96
There are limited circumstances in which it is envisaged that a
methodology determination might be revoked. One circumstance would
be if there is new scientific evidence that brings into serious
question the credibility of the estimation method or abatement
technology.

5.97
If the Minister revokes a methodology, a copy of the DOIC’s
advice will be published on the Department of Climate Change and
Energy Efficiency website [Part 9, Division 2, clause
123(5)] .

Application of a methodology
determination

5.98
There can be only one methodology (the declared methodology) used
to estimate abatement over a reporting period [Part 9, Division 2, clause
124] .

5.99
Unless the Administrator approves otherwise, the methodology
determination that has been declared for the project will apply
until the end the project’s crediting period. This is the
case even if the original methodology determination is varied,
expires or is revoked [Part 9, Division 2, clause 125, 126 and
127] .

5.100
The project proponent may request that the Administrator to approve
the application of a methodology other than the original
methodology determination [Part 9, Division 2, clause
128(1)] . For example, the project
proponent may want to apply a varied methodology if it results in
more accurate and higher abatement estimates. Project proponents
may apply the Government’s default reforestation methodology
to begin with but apply to use a new ‘species-specific’
methodology when one becomes available.

5.101
The Administrator may seek further information from an applicant
[Part 9, Division 2, clause
129(1)] . If the applicant does not
provide this information as requested, the Administrator may refuse
to consider or take any further action in relation to the
application [Part 9, Division 2, clause
129(2)] .

5.102
Once the application of a methodology other than the original
methodology determination has been approved, this will apply from
the end of the previous reporting period (or the start of the
project if a report has not yet been submitted) [Part 9, Division 2, clause
128(1)] . Note that the project
proponent chooses when to report, provided that the period between
reports is not shorter than 12 months or longer than 5 years (below
6.8).

5.103
The request for the application of a methodology other than the
original methodology determination must be in writing, in a form
approved by the Administrator and accompanied by such documents as
the Administrator requests [Part 9, Division 2, clause
128(2)] . The request can be made at
any time.

5.105
The Administrator must not approve the request unless it is
satisfied that the methodology determination applies to the project
[Part 9, Division 2, clause
130(3)] .

5.106
The Administrator must approve the request in writing [Part 9, Division 2, clause
130(2)] . If the Administrator decides
not to approve the request it must provide the applicant with
written notice of the decision [Part 9, Division 2, clause
130(5)] .

5.107
An approval made by the Administrator is not of a legislative
character and is therefore not within the meaning of section 5 of
the Legislative Instruments
Act 2003 [Part 9, Division 2, clause
130(6)] . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required.

Application and transitional
provisions

Transitional provisions

5.108
Prior to the bill commencing, an interim Domestic Offsets Integrity
Committee (interim DOIC) was established for the purpose of
assessing methodologies. The bill outlines the transitional
arrangements for methodologies which were submitted to the interim
DOIC for assessment [Part 9, Division 2, clause 131 and
132] . The purpose of these
arrangements is to streamline the transition between the interim
DOIC and the legislative DOIC for the methodology process.

5.109
An application for the endorsement of a proposal which was
submitted to the interim DOIC may be considered an application
under clause 108 for the endorsement of a methodology by the
legislative DOIC [Part 9, Division 2, clause
131(3)] . This means a person would not
have to re-submit their application if the interim DOIC has not
made a decision on the proposal, to either endorse or refuse to
endorse it, at the time the legislated DOIC commences. When the
scheme commences, a proposal would continue through the process of
assessment. The legislative DOIC may make an assessment and
recommendation on the proposal [Part 9, Division 2, clause
131] .

5.110
An application that has been endorsed by the interim DOIC, but not
approved by the Minister, may be treated as if it were an
application under clause 108, and not be resubmitted and assessed
[Part 9, Division 2, clause 132(3),
(4)] . This clause means the
endorsement of the interim DOIC would be treated as a decision by
the legislative DOIC, providing that all the conditions of
endorsement of a proposal in clauses 107 and 108 have been met and
the Minister has been advised of the endorsement [Part 9, Division 2, clause
132(2)] .

5.111
As noted in above, reforestation, legacy waste and other types of
projects for which methodologies are approved prior to 1 July 2012
may be backdated to 1 July 2010. This transitional arrangement is
to allow backdating of existing projects, such as projects under
the Australian Government’s Greenhouse Friendly program.

Outline of chapter

6.2
The relevant provisions are contained in Parts 2, 3, 7, 8 and 15 of
the bill.

Context

6.3
Carbon that has been removed from the atmosphere and stored in
plants and soils can be released back to the atmosphere. In order
to be genuinely equivalent to emissions (and therefore suitable
offsets), sequestration must be permanent.

6.4
Sequestration is generally regarded as permanent if it is
maintained on a net basis for around 100 years.

6.5
Over this period, land on which sequestration projects occur will
likely be transferred to new owners. Landholders may also wish to
cancel projects and convert to alternative land uses. Provisions
are needed to cover these eventualities.

6.6
There is also a risk that carbon that has been stored will be
released back into the atmosphere. For example, deliberate
clear-felling of trees could re-release carbon stored in trees, or
natural disturbance such as drought may cause carbon to be released
from soil. The bill needs to address this risk.

6.7
The demand for sequestration Australian carbon credit units (ACCUs)
depends on having credible arrangements to ensure that ACCUs
represent permanent abatement.

Explanation of new law

Overview

6.8
The basic permanence obligation is to maintain carbon stores for
which ACCUs have been issued or to hand the credits received for
the project back to the Administrator.

6.9
Credits do not have to be handed back if carbon stores are lost for
reasons that are beyond the control of the project proponent, for
example as a result of natural or deliberately lit fires. Instead,
the project proponent will be required to enable carbon stocks to
recover.

6.10
The risk of reversal buffer is to insure the scheme against
temporary losses of carbon whilst carbon stores are recovering, and
losses as a result of wrong doing by the project proponent that
cannot be remedied, for example if the project proponent leaves the
country.

6.11
The purpose of a carbon maintenance obligation is to protect carbon
stores in circumstances where the project proponent has not or is
unlikely to hand back credits as required. A carbon maintenance
obligation ‘runs with the land’ and will therefore
apply to future land owners.

Relinquishment to ensure
permanence

6.12
The bill outlines circumstances in which project proponents must
hand back or relinquish Australian carbon credit units (ACCUs) to
the Administrator and provides mechanisms to provide for this (see
chapter 10).

6.13
Relinquishment requirements that are especially relevant to
permanence are:

â¢
where a project is voluntarily terminated;

â¢
where the project has been revoked by the Administrator;

â¢
where carbon stores have not been restored following a natural
disturbance; and

â¢
where there has been deliberate reversal of the carbon stores

6.14
These situations are explored in more detail below. The requirement
to relinquish for providing false or misleading information and the
mechanisms generally for ensuring relinquishment are outlined in
chapter 10.

Voluntary termination of a
project

6.15
Farmers and landholders will be able to terminate projects if, for
instance, the financial return for alternative land uses means it
is cost effective to buy and hand back ACCUs.

6.16
A person could cancel their sequestration project and withdraw from
the scheme at any time by applying for revocation of the eligible
project declaration [Part 3, Division 4, clause 32(1) and
33(1)] . Regulations may be made
regarding the form of the application [Part 3, Division 4, clause 32(3) and
33(3)] .

6.17
Before the Administrator can revoke a declaration, the project
proponent would have to hand back the same number of ACCUs that
were issued (and not previously relinquished) for the project
[Part 3, Division 4, clause
32(2)] . This number is referred to as
the net total number of ACCUs issued in relation to an eligible
offsets project [Part 3, Division 7, clause
42] .

6.18
The project proponent would have to hand back the same kind of
units that had been issued for a project; that is, Kyoto or
non-Kyoto ACCUs as relevant [Part 3, Division 4, clause
32(2)(c)] .

6.19
For example:

Jane owns land on
the outskirts of Brisbane. There is a project on the land that
involves management of Kyoto-compliant forest regrowth. She has
received 1500 Kyoto ACCUs for her project and sold them to Big
Power for $15.00 each.

A property
developer, Houses ‘r’ Us approaches her to buy the land
for $1.5 million to create a new housing estate.

Jane buys Kyoto
ACCUs from Carbon Forests Australia for $20 each and relinquishes
them to the Administrator. Jane sells the land to Houses r Us free
of any obligations under the scheme after applying for revocation
of the eligible project
declaration.

6.20
Landholders undertaking reforestation or revegetation projects for
environmental reasons, such as to preserve biodiversity, may wish
to place a conservation covenant over the land to prevent
termination of the project.

Revocation of project by
Administrator

6.21
The Administrator may revoke a project declaration in some
circumstances. Chapter 3 outlines how a project declaration can be
revoked.

6.22
A person will have to hand back any ACCUs received for the project
if the project was a sequestration offsets project, and the project
proponent has received ACCUs for the project, and the project was
revoked (see Chapter 3 above).

6.23
This is because the project proponent is not meeting scheme
obligations and there is a risk that carbon stores will be reversed
without an equivalent number of units being handed back to the
Administrator. The Administrator may also apply carbon
maintenance obligation in these circumstances.

6.24
The amount of ACCUs to be relinquished would be all ACCUs issued to
the person in connection with the project, not just the amount of
ACCUs the person currently has in their Registry account.

6.25
The Administrator would specify the number of ACCUs that would have
to be handed back. The number could not exceed the total number of
ACCUs that had been issued for the project, less any ACCUs that had
previously been handed back to the Administrator [Part 7, Division 3, clause 89(2) and
(3)] .

6.26
The project proponent has 90 days to comply with the relinquishment
requirement [Part 7, Division 3, clause
89(4)] .

6.27
This requirement will continue to apply for 100 years after the
first ACCUs were issued for the project or for 100 years after a
new project area was added to the project, unless the regulations
specify otherwise [Part 7, Division 3, clause
89(1)(d) and (e)][Part 7, Division 1, clause
87] . This latter provision prevents
avoidance of permanence obligations by adding project areas to an
existing project rather than commencing a new project. As noted
above, carbon stores are generally considered permanent if they are
maintained for around 100 years.

6.28
If the project proponent does not comply with the relinquishment
requirement within 90 days, an administrative penalty applies. This
penalty is outlined in chapter 10.

Failure to re-establishment carbon stores after
bushfire and drought

6.29
Australia is subject to frequent natural disturbances, such as
drought, bushfire and pest attacks, many of which will be beyond
the control of individual project proponents.

6.30
Project proponents will not be required to hand back ACCUs that
have been issued for the project if carbon stores are lost because
of

â¢
bushfire, drought or pest attack;

â¢
reasonable actions to reduce bushfire risks, such as establishing
fire breaks; or

â¢
vandalism or other actions that are outside the control of the
project proponent [Part 7, Division 3, clause
90(1)(e)] .

6.31
Project proponents must take reasonable steps to ensure that carbon
stores are re-established [Part 7, Division 3, clause
91(1)(f)] . In many cases, carbon
stores may recover naturally after drought or bushfire with only
modest intervention by the project proponent. In some cases, active
re-establishment may be necessary.

6.32
Project proponents would have to hand back ACCUs if there was a
significant reversal and reasonable steps are not taken to
re-establish the carbon stores [Part 7, Division 3, clause
91(1)(d)] . The regulations will define
what would be considered a significant reversal.

6.33
The Administrator would specify the number of ACCUs that would have
to be handed back. This number could not exceed the total number of
ACCUs that had been issued for the project, less any ACCUs that had
previously been handed back to the Administrator [Part 7, Division 3, clause 90(2) and
(3)] .

6.34
The project proponent has 90 days to comply with the relinquishment
requirement [Part 7, Division 3, clause
90(4)] .

6.35
This requirement will continue to apply for 100 years after the
first ACCUs were issued for the project or for 100 years after a
new project area was added to the project [Part 7, Division 3, clause 90(1)(f) and
(g)] . This latter provision prevents
avoidance of permanence obligations by adding project areas to an
existing project rather than commencing a new project. As noted
above, carbon stores are generally considered permanent if they are
maintained for around 100 years.

Deliberate reversal of carbon
stores

6.36
Project proponents would have to hand back ACCUs if they cause
significant reversals in carbon stores, for example, by clearing a
forest or vegetation [Part 7, Division 3, clause 90(1) and
(2)] . The regulations will define what
would be considered a significant reversal.

6.37
The project proponent would have to hand back the same kind of
units that had been issued for a project; that is, Kyoto or
non-Kyoto ACCUs as relevant [Part 7, Division 3, clause
90(2)] .

6.38
The Administrator would specify the number of ACCUs that would have
to be handed back. The number could not exceed the total number of
ACCUs that had been issued for the project, less any ACCUs that had
previously been handed back to the Administrator [Part 7, Division 3, clause 90(2) and
(3)] .

6.39
The project proponent has 90 days to comply with the requirement
[Part 7, Division 3, clause
90(4)] .

6.40
This requirement will continue to apply for 100 years after ACCUs
were first issued or for 100 years after a new project was added to
the project [Part 7, Division 1, clause
87], [Part 7, Division 3, clause 90(1)(f) and
(g)] . This latter provision prevents
avoidance of permanence obligations by adding project areas to an
existing project rather than commencing a new project.

Risk of reversal buffer

6.41
A risk of reversal buffer will be deducted from the ACCUs issued
for sequestration projects [Part 2, Division 3, clause
17(2)] . The risk of reversal buffer
will be 5 percent of the ACCUs issued unless another number is
specified in the regulations [Part 2, Division 3, clause 17(2)(a) and
(b)] .

6.42
For example:

The Bush Trust
establishes an environmental mixed species
planting.

Their first
project report is made 5 years after establishment of the planting.
The amount of carbon sequestered during the period is 600
tonnes.

Once the risk of
reversal buffer is applied, they receive 570 Kyoto
ACCUs.

6.43
The 5 percent buffer under the scheme is similar to the residual
buffer under the Voluntary Carbon Standard (which is not returned
to project proponents). The buffer will be adjusted over time
to reflect actual losses of carbon across the scheme. To
provide investment certainty, adjustments to the buffer will apply
to new projects and to existing projects from the commencement of
the next crediting period.

6.44
The risk of reversal buffer is designed to ensure that all scheme
ACCUs represent permanent abatement by insuring the scheme
against:

â¢
temporary losses of sequestration whilst carbon stores are being
re-established after a fire or drought;

â¢
losses as a result of wrongdoing by a project proponent, which
cannot be remedied through the application of penalties under the
scheme; or

â¢
necessary losses as a result of fire reduction activities such as
prescribed burning to establish fire breaks.

6.45
The risk of reversal buffer does not insure the project proponents
against loss of income from the sale of ACCUs following fire or
other natural disturbance or for the costs of re-establishing
carbon stores. Private insurance products are available to cover
these risks.

6.46
The risk of reversal buffer will insure the scheme against
temporary losses as a result of natural disturbance and conduct by
a third party that is outside the control of the project proponent,
and losses as a result of wrongdoing by a project proponent that
cannot be remedied.

6.47
Estimation methods for sequestration projects must provide for
estimates to be adjusted to account for significant variations in
carbon stores that are likely to arise as a result of climatic
cycles [Part 9, Division 3, clause
133(1)(f)] (see Chapter 5 above).

6.48
Carbon stored in agricultural soils and some forms of vegetation
are likely to be susceptible to significant cyclical variations,
largely driven by fluctuations in annual rainfall. It is required
that methodologies for these activities take account of these
cyclical variations.

6.49
As a result of these adjustments, ACCUs would generally be issued
for average increases in sequestration rather than temporary
increases beyond this level (maximum sequestration).

6.50
This provision reduces the risk that ACCUs will be issued for
abatement that may not be permanent. It also makes possible a risk
of reversal buffer that is lower than other voluntary offsets
schemes, without compromising the environmental integrity of
ACCUs.

Maintaining carbon over the long
term

6.51
The Administrator may declare that a carbon maintenance obligation
applies with respect to an area or areas of land if there is an
unmet obligation to relinquish ACCUs or if the Administrator is
satisfied that the person will not comply with the requirement
within 90 days [Part 8, Division 2, clause
97(2)(a)and (b)] .

6.52
Clause 97(15) clarifies that a declaration of a carbon maintenance
obligation is not a legislative instrument. A carbon maintenance
obligation is not of a legislative character and is therefore not
within the meaning of section 5 of the Legislative Instruments Act 2003 . The provision
is included to indicate that an exemption from the Legislative
Instruments Act is not sought or required.

6.53
Obligations to relinquish ACCUs would be triggered if a project
declaration is revoked, for example, if a project is not properly
transferred, if carbon stores are deliberately reversed or not
re-established following a natural disturbance or if a person
provides false or misleading information to the Administrator.

6.54
If the Administrator makes a carbon maintenance obligation
declaration it must take all reasonable steps to ensure that a copy
of the declaration is given to the project proponent, each person
who holds an interest in the area, the relevant land registration
official and any person specified in the regulations [Part 8, Division 2, clause
97(6)] . Failure to comply with this
requirement does not affect the validity of the order [Part 8, Division 2, clause
97(7)] .

6.55
A carbon maintenance obligation will come into force when a copy of
the declaration is issued to the project proponent [Part 8, Division 2, clause
97(13)] .

6.56
A carbon maintenance obligation prevents a person from engaging in
conduct that results or is likely to result in a reduction in
carbon stores below the benchmark sequestration level, unless the
conduct relates to an activity that has been expressly permitted in
the declaration [Part 8, Division 2, clause
97(2)(b) and (9)] .

6.57
The benchmark sequestration level is the amount of carbon
sequestered in the relevant pool on the area or areas at the time
that the carbon maintenance declaration was made [Part 8, Division 2, clause
97(8)] .

6.58
This provision means that a person who becomes subject to a carbon
maintenance obligation who may not have benefited from the project
does not have to restore lost carbon stores. Note that the risk of
reversal buffer is intended to cover losses of carbon as a result
of unmet relinquishment obligations.

6.59
If the carbon stores fall below the benchmark sequestration level,
for example, because of bushfire, drought or an action by a
neighbour or other third party, the owner or the occupier of the
land must take all reasonable steps to ensure that carbon stores
recover to the benchmark level. In many cases, this would mean
allowing vegetation to regrow. In some cases the owner or occupier
may need to take more active steps to re-establish carbon
stores.

6.60
Permitted activities may be specified in the carbon maintenance
obligation declaration with reference to the manner, time, place,
persons or time period during which the activity is carried out.
This provision is intended to enable areas that are subject to a
carbon maintenance obligation to be used for productive purposes
such as for cropping, grazing or producing wood products. Such
activities may result in variations in carbon stocks, including
temporary reductions below the benchmark sequestration
level.

6.61
A person must not assist, induce, conspire with others or be
involved in contravening a carbon maintenance obligation
[Part 8, Division 2, clause
97(11)] . This is to prevent persons
other than the land owner from reversing carbon stores. It is also
to prevent the land owner or occupier from evading their carbon
maintenance obligation by encouraging someone else to reverse
carbon stores.

6.63
The carbon maintenance obligation will continue to apply for 100
years after the first ACCUs were issued for the project or for 100
years after a new project area was added to the project
[Part 7, Division 1, clause 87] [Part 8, Division
2, clause 97(14)] . This latter
provision prevents avoidance of permanence obligations by adding
project areas to an existing project rather than commencing a new
project

6.64
A carbon maintenance obligation can be revoked once any outstanding
relinquishment obligation or penalties payable in relation to the
project have been paid in full [Part 8, Division 2, clause 97(14)(a) and
(b)] . This means that carbon
maintenance obligations cannot be avoided by transferring the
project to another person.

Variation or revocation of a carbon maintenance
obligation

6.65
A person may apply to the Administrator to vary or revoke the
carbon maintenance obligation declaration. The Administrator may
vary or revoke the carbon maintenance obligation declaration on its
own initiative or in response to such an application [Part 8, Division 2, clause
98] .

6.66
If the Administrator revokes or varies the carbon maintenance
obligation declaration it must take all reasonable steps to ensure
that a copy of the declaration is given to the project proponent,
each person who holds an interest in the area, the relevant land
registration official and any person specified in the regulations
[Part 8, Division 2, clause
98(6)] . Failure to comply with this
requirement does not affect the validity of the order [Part 8, Division 2, clause
98(7)] .

6.67
It should be noted that the cessation of the carbon maintenance
obligation will not mean that the carbon can be dealt with contrary
to any other obligations or requirements that may apply under other
legislative regimes, such as, for example, state or territory
planning or vegetation-related laws.

6.68
A carbon maintenance obligation declaration must be revoked if a
person applies to the Administrator and relinquishes any remaining
ACCUs that have been issued for the projects and not previously
relinquished [Part 8, Division 2, clause 99(1)
and (2)] .

6.69
The ACCUs must be of the same type - Kyoto or non-Kyoto ACCUs
- as those issued for the project [Part 8, Division 2, clause 99(1)(e) and
(f)] .

6.70
The application to revoke the carbon maintenance obligation
declaration must be in an approved form and in writing [Part 8, Division 2, clause
99(3)] .

6.71
Clause 98(9) and 99(7) clarify that a variation or revocation of a
carbon maintenance obligation is not a legislative instrument. A
variation or revocation is not of a legislative character and is
therefore not within the meaning of section 5 of the
Legislative Instruments
Act 2003 .
The provision is included to indicate that an exemption from the
Legislative Instruments Act is not sought or required.

Injunctions

6.72
The bill includes a power for the Administrator to apply for an
injunction if a carbon maintenance obligation is not being
fulfilled. The Administrator may apply for a:

â¢
performance injunction if a person is failing to take any action
[Part 8, Division 3, clause
100(1)] ; or

6.73
The Federal Court’s power to issue an injunction is not
limited by the Court’s view of the person’s future
intent or the person’s past actions in relation to the
injunction being considered [Part 8, Division 3, clause
103] . The Administrator may also apply
for an interim injunction if he or she considers the matter urgent;
the Administrator is not required to give any undertaking as to
damages for an interim injunction [Part 8, Division 3, clause
101] . The Court may discharge or vary
an injunction [Part 8, Division 3, clause
102] . The powers in the bill are in
addition to any other powers of the Court [Part 8, Division 3, clause
104] .

Entries in title
registers

6.74
The Government will work with state and territory governments to
note the existence on relevant land titles of permanence
obligations under this bill.

6.75
The legislation notes that the relevant land registration official
may take appropriate action to bring to people’s attention
the existence of an offsets project, that obligations may arise in
relation to the project and if there is a carbon maintenance
obligation that applies to an area of land [Part 3, Division 5, clause 39 and
40] .

6.76
These provisions are for information and make clear that actions in
relation to land title registers are at the discretion of the
relevant state government official, who cannot be directed by the
Commonwealth Government.

Context

7.4
The reporting and notification requirements, together with the
audit framework, are designed to ensure that the Administrator
receives accurate and timely information about projects and
abatement. The Administrator will use this information to issue
credits and for compliance purposes.

Explanation of new law

Reporting requirements

Reporting periods

7.5
The first reporting period for an eligible offsets project begins
when the project is declared eligible by the Administrator
[Part 6, Division 2, clause
76(1)(b)] .

7.6
Project proponents can choose when to report on their project,
provided that the reporting period is not shorter than 12 months or
longer than 5 years [Part 6, Division 2, clause 76(1)(c) and
(d)] . This flexibility will enable
project proponents to decide when it is cost effective to submit a
report and claim ACCUs. This will depend in part on the nature of
the project and timing of emissions reductions or
sequestration.

7.7
For example, reforestation projects sequester relatively small
amounts of carbon in the first few years following their
establishment. Proponents of reforestation projects may choose to
delay their first report until five years after forest
establishment but then report annually while the forest is in its
maximum growth phase.

7.8
The project proponent would nominate an end date for the reporting
period. The project proponent must submit an offsets report within
three months of the nominated end date [Part 6, Division 2, clause
76(4)(e)] . This provides a reasonable
amount of time to finalise offsets reports and have them audited
after the end of the nominated reporting period.

Offset reports

7.10
Project proponents are required to submit an offsets report at to
the Administrator in the form and containing (or attaching) an
audit report by a registered greenhouse gas and energy auditor and
the information prescribed in the regulations or the applicable
methodology determination [Part 6, Division 2, clause 76(3) and
(4)] .

7.11
The methodology applicable to an eligible offsets project may also
set out requirements for reporting on the project to the
Administrator. This information will also need to be included in
the offsets report [Part 6, Division 2, clause
76(7)] . For example, project
proponents using the Government’s reforestation methodology
may have to include in their report information about management
actions or natural disturbances to the
forest.

7.12
The regulations may exempt some types of projects from the
requirement to submit an audit report with the offsets report
[Part 6, Division 2, clause
76(5)] . This is to reduce compliance
costs for small projects, which present minimal risk to the overall
integrity of the scheme.

7.13
The regulations can exempt certain kinds of offsets projects from
having to have their offsets reports audited [Part 6, Division 2, clause
76(5)] . This clarifies that, in
accordance with the Legislative
Instruments Act 2003 , where the bill indicates that
regulations may specify a particular kind of project to be exempt
from providing an audit report, the regulations may identify more
than one particular kind or class of project [Part 6, Division 2, clause
76(6)] .

7.14
If the Administrator has split a project, which includes both Kyoto
and non-Kyoto abatement, into a Kyoto project and a non-Kyoto
project, the proponent for these projects can provide a single
offsets report for both projects [Part 6, Division 2, clause
76(8)] . This will reduce compliance
costs because it means that the project proponent will not need to
distinguish and report separately on their Kyoto and non-Kyoto
abatement. This could be very difficult for the project proponents,
for example, if a reforestation project occurs on both Kyoto
eligible and ineligible land.

7.15
Offsets reports are the primary mechanism used by the Administrator
to, among other things:

â¢
in the case of sequestration projects, to quantify the amount of
carbon that must be maintained in a project area, if the
Administrator issues a carbon maintenance obligation [Part 8, Division
2] .

7.16
Failure to provide an offsets report or taking action to avoid
submitting an offsets report to the Administrator is an offence
that may attract a civil penalty [Part 6, Division 2, clause
76(11)] .

Reporting obligations during the maintenance
phase

7.17
Regulations may empower the Administrator to allow proponents to
stop providing offsets reports where the project has reached its
maximum carbon sequestration capacity and sufficient information is
available to support this conclusion [Part 6, Division 2, clause 77(1) and
(2)] .

7.18
This arrangement is intended to reduce compliance costs for
proponents once projects have reached maximum levels of carbon
sequestration. After this time credits would no longer be issued
for the project and it would move into a maintenance phase. This
provision only applies to sequestration projects because only
sequestration projects continue after ACCUs are no longer being
issued.

7.19
During the project maintenance phase, proponents will still be
required to notify the Administrator of relevant changes to a
project (see Chapter 8). This will assist the Administrator to
monitor ongoing compliance with scheme obligations.

7.20
The declaration would take effect on the day it is made or on a
later specified date [Part 6, Division 2, clause
77(6)] .

7.21
The form of the application and the information, documents and fees
(if any) that must accompany such applications will be set out in
the regulations [Part 6, Division 2, clause
77(3)(b), (c), (d) and (f)] . The
purpose of the fee is to enable the Administrator to recover costs
associated with processing the application. The fee cannot be in a
form that would amount to a tax [Part 6, Division 2, clause
77(5)] .

7.22
Where appropriate, the Administrator will take a light-handed
approach to documentation to reduce administrative costs for the
project proponent, for example, the Administrator may provide for
statements to be verified by statutory declaration [Part 6, Division 2, clause
77(3)(e)] .

7.23
The regulations may provide for the application to be withdrawn at
any time [Part 6, Division 2, clause
77(3)(g)] .

7.24
The Administrator may seek further information from an applicant
[Part 6, Division 2, clause
77(3)(h)(i)] . If the applicant does
not provide this information as requested, the Administrator may
refuse to consider or take any further action in relation to the
application [Part 6, Division 2, clause
77(3)(h)(ii)] .

Notification
requirements

7.25
To help maintain the integrity of the scheme, project proponents
must notify the Administrator if there has been a change in their
circumstances or certain events occur, such as fire. Up to date
information can assist the Administrator determine the need to vary
the project or undertake compliance action such as a declaring a
carbon maintenance obligation. It also ensures the Australian
National Registry of Emissions Units is accurate and enables
reliable public reporting by the Administrator on the operation of
the scheme.

7.26
The following circumstances trigger a requirement to notify the
Administrator:

â¢
where a person stops being the proponent for an eligible offsets
project for reasons other than death such as selling their interest
in a project [Part 6, Division 3, clause
78] ;

â¢
where a proponent for an eligible offsets project dies, in which
case their legal representative must notify the Administrator
[Part 6, Division 3, clause
79] ;

â¢
where the methodology that applies to an eligible offsets project
requires the proponent to notify the Administrator on a matter
[Part 6, Division 3, clause
80] . For example, they have decided to
undertake extensive thinning of their reforestation project,
changing the planting density from the original approved project
proposal;

â¢
where there is a significant reversal of carbon stored in an
eligible sequestration project due to a natural disturbance such as
fire or flood [Part 6, Division 3, clause
81] . Proponents have up to 60 days to
notify the Administrator, giving the proponent time to respond to
the emergency;

â¢
where there is, or likely to be, a significant reversal of carbon
stored in an eligible sequestration project due to the conduct of a
person other than the project proponent, which is outside of the
control of the proponent [Part 6, Division 3, clause
82] . Proponents have 60 days to notify
the Administrator;

â¢
where a project changes so that it is no longer consistent with the
regional natural resource management plan [Part 6, Division 3, clause
83] . For example, a reforestation
project that includes the removal of small areas of remnant
vegetation that act as a wildlife corridor;

â¢
where a recognised offsets entity of an eligible offsets project is
convicted of an offence relating to dishonest conduct under
Commonwealth, state or territory legislation or becomes insolvent
[Part 6, Division 3, clause
84(1)] ;

7.27
Failure to notify the Administrator in writing within the specified
time or otherwise 90 days, or taking action to avoid notifying the
Administrator of the (above) prescribed circumstances is an offence
that may attract a penalty [Part 6, Division 3, clause 78 to
84] . This is to encourage project
proponents to take reporting obligations seriously.

7.28
In accordance with the Acts
Interpretation Act 1901 , where the bill indicates that
the regulations can specify different notification requirements for
different project proponents or offset entities, the regulations
may specify only some project proponents or entities, or deal with
proponents or entities, or classes of proponents or entities,
differently [Part 6, Division 3, clause
85(3)] .

8.5
The scheme relies on the existing audit framework established under
the National Greenhouse and
Energy Reporting Act 2007 . This audit framework
has been developed in consultation with the audit community and is
well tested. The framework can be easily adapted for the
purposes of the scheme.

Explanation of new law

Audits for project approval
purposes

8.6
The regulations may require applications for approval of certain
kinds of projects to be accompanied by an audit report [Part 3, Division 2, clause
23(1)(d)] . This is to assist the
Administrator to assess complex projects, and most proposed
projects are not expected to be audited under this provision. The
scope of such audits may also be limited to matters that require
particular attention or which are beyond the expertise of the
Administrator to assess.

Audits required prior to
crediting

8.8
The regulations may provide that for certain kinds of projects, no
audit report is required when applying for a certificate of
entitlement [Part 2, Division 3, clause
13(2)] [Part 6, Division 2, clause
76(5)] . This is intended to allow the
Administrator to operate an alternative audit program to reduce
auditing costs for small projects.

8.9
The regulations may also empower the Administrator to declare that
reporting and auditing obligations do not apply to sequestration
offsets projects that have reached their maximum carbon
sequestration capacity [Part 6, Division 2, clause
76(5)] . This is intended to reduce
auditing costs for sequestration projects which are in the
maintenance phase.

8.10
An offsets report and the accompanying audit report must be
submitted with an application for a certificate of entitlement
before ACCUs are issued [Part 2, Division 3, clause
12(1)(e)] . This is to demonstrate that
real reductions in greenhouse emissions or increases in carbon
sequestration have occurred prior to issuing any ACCUs.

Compliance and other
audits

8.11
If the Administrator has reasonable grounds to suspect a person of
contravening (or proposing to contravene) the Act, the
Administrator can issue a notice requiring the person to commission
an audit [Part 19, Division 2, clause
214(1) and (2)] . These audits are
known as ‘compliance audits’.

8.12
The notice must specify the type of audit, matters to be covered by
the audit, the form of the audit report and the kinds of details it
is to contain [Part 19, Division 2, clause
214(3)] . The person suspected of
contravening the Act may appoint a registered greenhouse and energy
auditor of their own choice, or the Administrator may choose to
specify one or more auditors who can undertake the audit
[Part 19, Division 2, clause
214(2)(a)] .

8.13
The Administrator can require that a written report of the audit
results be provided to the person and the Administrator
[Part 19, Division 2, clause 214(2)(c) and
(d)] .

8.14
If an audit under this section does not reveal any evidence of non
compliance, the person required to commission it can apply to have
their costs reimbursed. The Administrator may reimburse reasonable
costs if satisfied that the person would suffer financial hardship
if they were not reimbursed [Part 19, Division 2, clause
214(8)] . This is intended to prevent
undue impacts on small projects, where the costs of undertaking the
audit could be significant relative to the scale of the
project. Reimbursements under this section must be made from
money appropriated by the Parliament, and can be debited against an
Agency’s annual appropriation. The process for approving a
spending proposal would be available through Regulation 8 of the
Financial Management and Accountability Regulations and section 44
of the Financial Management and
Accountability Ac t1997 and the process of making the
reimbursement would involve a drawing right under section 26
of the FMA Act.

8.15
The Administrator can also appoint an auditor directly [Part 19, Division 2, clause
215] . In doing so, the Administrator
must notify the subject of the audit in writing at a reasonable
time before the audit takes place. The notice must specify the
audit team leader, the time frame in which the audit will take
place, the type of audit and the matters to be covered [Part 19, Division 2, clause
215(2)] . These audits are intended to
be used for routine monitoring of compliance and may be based on
the Administrator’s assessments of compliance, risks,
statistical sampling of projects, and other approaches.

8.16
For both compliance and other audits, a person must provide the
audit team leader and people assisting the team leader with all
reasonable facilities and assistance needed to complete the audit
[Part 19, Division 2, clause 214(4) and
215(3)] .

8.17
A person must not to try to stop someone from complying with these
parts of the Act [Part 19, Division 2, clause
214(6) and 215(4)] .

Greenhouse and energy
auditors

8.18
All audits required by the bill must be undertaken by greenhouse
and energy auditors registered under the National Greenhouse and Energy Reporting Act
2007 . Using the pre-existing register will increase
administrative efficiency and reduce duplication, for example, by
maintaining a single register for qualified assurance auditors. It
will also reduce the risk of inconsistencies arising in the audit
arrangements, which would increase complexity for auditors and
proponents, many of whom will operate under both the bill and the
National Greenhouse and Energy
Reporting Act 2007 .

8.19
The Greenhouse and Energy Data Officer will have powers to
register, review registration of, inspect, suspend or deregister
auditors who conduct audits of offsets projects. The bill provides
for the Administrator to share information with the Greenhouse and
Energy Data Officer [Part 27, clause 276(1)(a) and
(2)] . This will enable the
Administrator to provide, among other things, information relating
to the performance of auditors undertaking audits of offsets
projects, including where the Administrator suspects an auditor has
contravened requirements under the Bill.

Consequential amendments

8.20
The National Greenhouse and
Energy Reporting Act 2007 will be amended to enable the
Greenhouse and Energy Data Officer to regulate auditors undertaking
audits of offsets projects.

8.21
Further amendments to the National Greenhouse and Energy Reporting
Regulations and the National Greenhouse and Energy Reporting
(Audit) Determination will allow for the creation of a special
category of auditors. Auditors in this category will have
qualifications, experience and knowledge relevant to scheme
projects. This will ensure that there are more auditors available
with appropriate qualifications and thereby reduce the costs
associated with auditing.

Outline of chapter

9.1
This Chapter describes the different types of Australian carbon
credit units (ACCUs), explains how credits are issued and exchanged
for international credits and discusses crediting periods.

9.2
The relevant provisions are contained in parts 2, 3, 11, 12 and 14
of the bill.

Context

9.3
Carbon credits generated under this scheme can be sold to companies
or individuals, in Australia or overseas.

9.4
Project proponents will be able to exchange ACCUs that represent
abatement that is counted towards its international targets for
Kyoto units held in the Australian Government’s Kyoto
registry account. These Kyoto units can be sold into international
markets that recognise these units. Internationally recognised
emissions units, such as Kyoto units, are be used to link carbon
offsets and carbon trading schemes by providing a common
‘currency’ of exchange.

9.5
Credits may be voluntarily cancelled and, if so, the Government is
required to ensure that this abatement is not counted towards
Australia’s Kyoto target. This allows individuals and
organisations to contribute to stronger national climate change
mitigation by reducing the supply of eligible emissions units.

Explanation of new law

Issue of units

9.6
The Administrator must issue ACCUs to a person who has a
certificate of entitlement and a registry account [Part 2, Division 2, clause 11(1), (5) and
(6)] .

9.7
The Administrator must issue ACCUs according to the number on the
certificate of entitlement and designated as Kyoto or non-Kyoto
ACCUs depending on whether the project is a Kyoto or non-Kyoto
project [Part 2, Division 2, clause 11(2)
and (3)] . If the reporting period
finishes after the Kyoto abatement deadline (currently set at 12
June 2012) then the Administrator must issue non-Kyoto ACCUs
[Part 2, Division 2, clause 11] [Part 1, clause
5, definition of ‘Kyoto abatement
deadline’] .

Certificate of
entitlement

9.8
A project proponent has to apply for a ‘certificate of
entitlement’ in order to receive ACCUs [Part 2, Division 3, clause
12] . The Administrator will not issue
ACCUs automatically when they receive an offsets report. Project
proponents will, however, be able to apply for ACCUs at the same
time they submit an offsets report.

9.9
The certificate of entitlement will specify the number of ACCUs
that the project proponent is entitled to receive for abatement
over the reporting period [Part 2, Division 3, clause
15(3)] .

9.10
The Administrator will apply the crediting rules set
out in clauses 16, 17 and 18 to work out how many ACCUs should be
issued. There are different crediting rules for sequestration
projects and emissions reductions projects. This is because the
risk of reversal buffer applies to sequestration projects
only. There is also a different crediting rule for native
forest projection projects.

9.11
A certificate of entitlement is not transferable [Part 2, Division 3, clause
20] . This means the project proponent
has to apply for and receive the ACCUs before transferring them to
someone else.

9.12
The application must be in writing, in a form approved by the
Administrator and must be accompanied by a fee if any is specified
in the regulations [Part 2, Division 3, clause
13(1)(a), (b) and (h)] . The purpose of
the fee is to enable the Administrator to recover administrative
costs [Part 2, Division 3, clause
13(5)] .

9.13
The application must specify the account number into which credits
are to be issued and the account number will be listed on the
certificate of entitlement [Part 2, Division 3, clause 13(1)(c)] [Part 2,
Division 3, clause 15(4)] .

9.14
The application must be accompanied by an offsets report and any
such documents or information specified in the regulations
[Part 2, Division 3, clause 13(1)(d), (f),
(g)].

9.15
Unless the project is exempt under the regulations, the application
must also be accompanied by, an audit report prepared by a
registered greenhouse and energy auditor [Part 2, Division 3, clause 13(1)(e) and
13(2)] . This is so that the
Administrator can have confidence in the validity of the
report.

9.16
In accordance with the Legislative Instruments Act 2003 ,
where the bill indicates that the regulations may specify a kind of
project that is exempt from audit requirements [Part 2, Division 3, clause
13(2)] , the regulations may identify
more than one particular kind or class of project [Part 2, Division 3, clause
13(3)] .

9.17
To minimise compliance costs for small project proponents, the
Government intends to exempt uncomplicated, low-risk offsets
projects from the requirement to include an audit report with each
offsets report.

9.18
Where appropriate, the Administrator will take a light-handed
approach to documentation to reduce administrative costs for the
project proponent, for example, the Administrator may provide for
statements to be verified by statutory declaration [Part 2, Division 3, clause
13(4)] .

9.19
The Administrator may ask the project proponent to provide further
information [Part 2, Division 3, clause
14(1)] . The Administrator may refuse
to consider or take further action on the report if the information
is not provided as requested [Part 2, Division 3, clause
14(2)] .

9.20
The Administrator must issue a certificate of entitlement if
satisfied that a number of conditions are met [Part 2, Division 3, clause
15(2)] . These include:

â¢
That the applicant is a recognised offsets entity [Part 2, Division 3, clause
15(2)(a)] . This prevents ACCUs from
being issued if the projects proponent’s recognition has been
cancelled because they no longer meet the fit and proper person
test [Part 4, clause
64(3)]. This creates a further
incentive for compliance with the provisions of this Act.

â¢
The applicant is the project proponent identified in the project
declaration [Part 2, Division 3, clause
15(2)(b)(ii)] . This is to prevent
credits from being issued to the wrong person.

â¢
The reporting period is within the crediting period [Part 2, Division 3, clause
15(2)(c)] . This is to prevent credits
from being issued for abatement that occurs after a project is no
longer approved to receive ACCUs.

â¢
All regulatory approvals have been met [Part 2, Division 3, clause
15(2)(e)] . This is to prevent
crediting of projects that have not met regulatory approvals, for
example state government environmental, planning or water
requirements. This creates a further incentive to comply with
scheme requirements designed to minimise the risk that projects
could have perverse environmental outcomes.

â¢
The applicant is not required to pay any penalties and does not
have an outstanding obligation to relinquish credits [Part 2, Division 3, clause 15(2)(f) and
(g)] . This provision is to promote
compliance with scheme obligations and will prevent a person that
has outstanding obligations in relation to one offsets project from
receiving ACCUs for another offsets project.

â¢
The applicant has met other requirements, if any, specified in the
regulations [Part 2, Division 3, clause
15(2)(h)] .

9.21
The Administrator has 90 days to decide whether or not to issue the
certificate of entitlement. If the Administrator has sought
additional information from the applicant, the clock stops until
the applicant provides the information requested, and then starts
again [Part 2, Division 3, clause
15(5)] . This provision is not intended
to result in the invalidity of a decision made after that time but
imposes a duty to take all reasonable steps to make the decision
within that timeframe.

Unit entitlement

Sequestration
projects

9.22
For sequestration projects, other than those that involve
protecting native forests from conversion to an alternative land
use, the entitlement of ACCUs (unit entitlement) will be the amount
of abatement measured according to the methodology for the
reporting period minus the risk of reversal buffer [Part 2, Division 3, clause 16(1) and
(2)] .

9.23
The risk of reversal buffer for sequestration projects will be
5 percent, unless another percentage is specified from the
start of the crediting period [Part 2, Division 3, clause 16(2) and
17(2)] . As information about the risks
associated with different kinds of projects becomes available, the
regulations may specify different risk buffers for different
classes of projects.

9.24
The risk of reversal buffer specified at the beginning of the
crediting period will apply for the whole crediting period
[Part 2, Division 3, clause 16 and
17] . In other words, the risk of
reversal buffer cannot be changed part way through a crediting
period. This is to provide investment certainty.

9.25
The unit entitlement must be a whole number and may be zero
[Part 2, Division 3, clause 16(3) and
(4)].

unit
entitlement = carbon storage - risk of reversal
buffer

Native forest protection
projects

9.26
Different crediting rules will apply to projects that involve
protecting native forests from being cleared for grazing or
clear-felled for harvest [Part 2, Division 3, clause
17] .

9.27
This is because such projects are likely to involve large
quantities of abatement. If this abatement is credited at the start
of the project (when the forest is protected from clearing or clear
felling) the supply of credits could outstrip demand, significantly
reducing the value of credits. This will also help to reduce risk
of non-permanence by providing a stream of credits to fund the
management and protection of native forests covered by these
projects. For this reason, credits will be issued over a period of
20 years (or another period if specified in the regulations)
[Part 5, Division 2, clause
69(1)] .

9.28
The unit entitlement for projects that involve avoiding conversion
of native forests will be the total of the carbon stored in the
forest less the risk of reversal buffer, multiplied by length of
the reporting period over the crediting period [Part 2, Division 3, clause
17(3)] .

Ben has the rights
to clear fell a native forest in Tasmania for
harvest.

Ben decides to
forgo this opportunity in order to protect the forest. He reports
on the forest 12 months after his project is approved and receives
credits for 1/20th of the total carbon storage less the risk of
reversal buffer.

Family matters
prevent Ben from submitting a second project report for another 4
years. When he submits his report, Ben receives credits for another
4/20th of the carbon stored in the forest less the risk of reversal
buffer.

9.30
This means that if the project proponent reports every two years
they will receive two times 1/20 of the total credit owing for the
project less the risk of reversal buffer, each time they report.
The regulations may specify an alternative risk of reversal buffer
[Part 2, Division 3, clause
17(3)(b)] .

9.31
This unit entitlement must be a whole number and may be zero
[Part 2, Division 3, clause 17(4) and
(5)].

Prescribed native forest protection
projects

9.32
The regulations may prescribe circumstances in which credits for
native forest conversion projects can be received at the
commencement of the project instead of over 20 years [Part 1, clause 5, definition of
‘prescribed native forest protection
project’] . It is intended that
the regulations will prescribe instances where a carbon project
will be managed and protected into the future, for example, where a
project is also covered by an ‘in perpetuity’ agreement
under the National Reserve System, a conservation covenanting
programs or conservation trusts.

9.33
For prescribed native forest conversion projects, the unit
entitlement will be total sequestration for the project minus the
risk of reversal buffer [Part 2, Division 3, clause
17(2)] .

Emissions avoidance
projects

9.34
The unit entitlement for emissions avoidance projects is the amount
of abatement for the reporting period, calculated according to the
methodology [Part 2, Division 3, clause 18(1)
and (2)] .

Crediting periods

9.35
Under the scheme, a crediting period is the period during which the
methodology determination and the risk of reversal buffer cannot be
changed without the consent of the project proponent. Within the
crediting period, the number of credits that may be issued for the
project will not be affected by changes in regulations that might
otherwise affect the additionality of the project, new data or
scientific evidence, which may result in the need for variations to
the methodology, or changes to the risk of reversal buffer. This
provides investment certainty for investors and project
proponents.

9.36
The crediting period for offset projects other than native
forest protection projects is 7 years [Part 5, Division 2, clause
69(1)(b)(i)] . The regulations may
provide a different crediting period for specified types of
projects [Part 5, Division 2, clause
69(1)(b)(ii)] . The intention is to
provide a 15 year crediting period for reforestation. A longer
crediting period is justified for reforestation because estimation
methods are well established, and the activity has long payback
period.

9.37
To prevent the supply of credits from outstripping demand and to
create incentives to manage native forests over the long term,
credits for native forest protection projects will be issued over a
20 year crediting period (see chapter 10) [Part 5, Division 2, clause
69(1)(b)(i)] . The regulations may
specify an alternative crediting period [Part 5, Division 2, clause
69(1)(i)] . This is to provide
flexibility to allow for shorter crediting periods, which will
enable project proponents to receive benefits more rapidly,
provided that this would not undermine the price of ACCUs or reduce
incentives to maintain and manage the forest.

9.38
In accordance with the Acts
Interpretation Act 1901 , where the bill indicates that
the regulations may specify different crediting periods for
different kinds of projects, the regulations may deal only with
some projects, or deal with projects or classes or projects
differently [Part 5, Division 2, clause
69(2)] .

Subsequent crediting
periods

9.39
A project proponent can apply for a subsequent or new crediting
period 6 months prior to the end of the first crediting period
[Part 5, Division 3, clause
70(2)] . The subsequent crediting
period would be 7 years for projects other than native forest
protection projects [Part 5, Division 3, clause
70(4)(a)] . The regulations may provide
for subsequent crediting period of different lengths [Part 5, Division 3, clause
70(4)(b)] . In accordance with the
Acts Interpretation Act
1901 , where the bill indicates that the regulations may
specify different crediting periods for different kinds of
projects, the regulations may deal only with some projects, or deal
with projects or classes or projects differently [Part 5, Division 3, clause
70(5)] .

9.40
The new crediting period would start immediately after the end of
the previous crediting period [Part 5, Division 3, clause
70(4)].

9.41
The administrator must not approve a new crediting period unless
the applicant is the project proponent [Part 5, Division 3, clause
74(3)(a)] . Further, the project must
be covered by a methodology determination and meet the requirements
of the determination [Part 5, Division 3, clause
74(3)] . The effect of this is that, if
the original methodology determination has been varied to reflect
scientific advances, the project may need to be modified
accordingly. If the original methodology determination has been
revoked and there is no replacement methodology for the activity,
it may not be possible for the Administrator to approve a
subsequent crediting period.

9.42
The project would also need to pass the additionality test
and must not be required under a law of the Commonwealth, a state
or a territory [Part 5, Division 3, clause
74(3)(d)] . This is to prevent land
managers from receiving credit for an activity that others in the
same industry or circumstances are required to do by law.

Applying for a subsequent crediting
period

9.43
The application for a subsequent crediting period must be in
writing and in a form approved by the Administrator [Part 5, Division 3, clause 71(1)(a) and
(b)] . The application must be
accompanied by other information or documents specified in the
regulations [Part 5, Division 3, clause
71(1)(c)and (h)] .

9.44
The regulations may specify an application fee [Part 5, Division 3, clause
71(1)(e)] . The purpose of the fee is
to enable the Administrator to recover costs associated with
processing the application [Part 5, Division 3, clause
71(3)] .

9.45
An application can be withdrawn at any time and in doing so does
not prevent the applicant from making a fresh application
[Part 5, Division 3, clause 73(1) and
(2)] . If this occurs, any fees paid in
relation to the application would be refunded [Part 5, Division 3, clause
71(3)] . This provision recognises that
it would normally be preferable for the Administrator to advise the
applicant of deficiencies in their application and to allow the
applicant to withdraw and re-submit a better application, rather
than rejecting the application and having the project proponent
incur the cost of submitting a new application.

9.46
Where appropriate, the Administrator will take a light-handed
approach to documentation to reduce administrative costs for the
project proponent, for example, the Administrator may provide for
statements to be verified by statutory declaration [Part 5, Division 3, clause
71(2)] .

9.47
To assist the assessment of an application, the Administrator may
request further information from the applicant [Part 5, Division 3, clause
72(1)] . If this is not provided,
the Administrator can refuse to consider or take further action
with respect to the application [Part 5, Division 3, clause
72(2)] .

9.48
The Administrator must notify the applicant as soon as practical
after making a determination that a project will be approved for a
subsequent crediting period [Part 5, Division 3, clause
74(4)] . Such a determination is
not of a legislative character and is therefore not within the
meaning of section 5 of the Legislative Instruments Act 2003 .
The provision is included to indicate that an exemption from the
Legislative Instruments Act is not sought or required [Part 5, Division 3, clause
74(6)] .

9.49
The Administrator must notify the applicant if it decides not to
vary the declaration and give reasons [Part 5, Division 3, clause
74(5)] . This provides the applicant
with procedural fairness.

Characteristics of Australian carbon credit
units

9.50
Australian carbon credit units will be issued by the Administrator
on behalf of the Commonwealth [Part 11, Division 2, clause
147] , through making an entry in the
relevant person’s registry account [Part 11, Division 2, clause
148] . The unit will thus be
represented by an electronic entry in the Registry, rather than by
a paper certificate. The Administrator will only be able to issue
ACCUs in accordance with the certificate of entitlement issued
under Part 2 of the bill [Part 2, Division 3, clause 15], [Part 11,
Division 2, clause 149] .

9.51
An ACCU which has been issued by the Administrator is personal
property and, subject to the relevant provisions in the bill,
transmissible by assignment, by will and by operation of law
[Part 11, Division 3, clause
150] . The Government’s policy
intention in adopting this approach in the bill is to reduce
uncertainty for holders of ACCUs, and promote market confidence in
and development of the carbon market. Nonetheless, it is recognised
that while an ACCU will always be equivalent to one tonne of carbon
dioxide either avoided or sequestered, the value of that unit is
determined by the demand for that unit in the market.

9.52
The bill does not affect the creation or enforcement of, or any
dealings with (including transfers of), equitable interests in
ACCUs [Part 11, Division 3, clause
158] . This provision has been included
for the avoidance of doubt. In addition, the bill is not
intended to prevent the taking of security over ACCUs.

Transfer and transmission of
ACCUs

9.53
The concept of transfer of an ACCU consists of the removal of an
entry for the unit from the first account and making an entry for
the unit in the second account [Part 11, Division 3, clause
151] .

9.54
There is provision for:

â¢
The transfer of ACCUs between accounts within the Australian
National Registry, in the name of the same person [Part 11, Division 3, clause
156] ;

9.55
At its simplest, a transfer is initiated by an electronic
instruction from the transferor transmitted to the Administrator,
which then removes the entry for the unit from one account and
makes an entry for that unit in another account.

9.56
Transmissions by operation of law bring additional issues. An
example is transmission of a unit to a person as the trustee of a
deceased person’s estate. In this situation, it is the
transferee who needs to establish evidence of transmission and, if
necessary, open a Registry account [Part 11, Division 3, clause
153] .

9.57
The timeframe for a person to provide the Administrator with
evidence of the transmission in these circumstances is
90 days, to ensure that the new owner of the emissions units
has ample time to provide the proof of that ownership. The
Administrator can also extend that period [Part 11, Division 3, clause 153(2) and
(5)].

Exchange of Australian carbon credit units for
Kyoto units

9.58
The bill provides for the recognition in Australian legislation of
the emissions units created under the Kyoto Protocol, and sets out
how these units can be issued [Part 11, Division
2] and transferred [Part 11, Division
3] . This is to enable abatement to be
exported, giving Australian abatement providers access to a larger
carbon market.

9.59
The provisions relating to Kyoto units have been drafted to ensure
the Australian legislation is consistent with the Kyoto Protocol
rules.

9.60
Kyoto ACCUs may be exchanged within the Registry for the following
Kyoto units, subject to the Kyoto rules and any conditions set out
in the regulations:

9.61
Assigned amount units and removal units may subsequently be
converted to emission reduction units, if the project has been
approved as a joint implementation project - see
Australian National Registry of
Emissions Units Bill 2011 clause 38. Further information
on Joint Implementation is set out below.

9.63
Kyoto ACCUs that are issued as a result of net removals of
greenhouse gases from activities under Article 3.3 of the Kyoto
Protocol (afforestation, reforestation and deforestation) may be
exchanged for removal units [Part 11, Division 3, clause
157(1)(b)(ii)] .

9.64
According to its obligations under the Kyoto Protocol, Australia
must issue or cancel units (as appropriate) for Article 3.3
activities, as calculated on an activity-by-activity basis. For the
first commitment period, Australia has elected to do this on an
annual basis. Regulations may give effect to any further Kyoto
rules relating to the issuance and transfer of removal units
- for example there needs to be a sufficient number of
Australian removal units in the national registry before exchange
can take place.

9.65
Kyoto ACCUs may be exchanged for emission reduction units if the
abatement was the result of an approved Joint Implementation
project [Part 11, Division 3, clause
157(1)(b)(iii)] . Further information
on the process for approval of Joint Implementation projects is
outlined below.

9.66
Non-Kyoto ACCUs will not be exchanged for Kyoto units, as this
abatement will not be reflected in Australia’s Kyoto
accounts.

9.67
For example:

Jeremy has a
project that avoids emissions from landfill. His project is
eligible to generate Kyoto ACCUs. He may choose to receive these
into his Registry account or he may exchange them for assigned
amount units, depending on what market he wants to sell the credits
into and where he is likely to receive a higher
price.

Rylee has a
reforestation project which is eligible to generate Kyoto ACCUs.
She may choose to receive these into her Registry account or to
exchange them for assigned amount units or removal units, likely
depending on the highest price on the market for these different
units.

9.68
The regulations may provide that when a Kyoto ACCU is exchanged for
a Kyoto unit, the corresponding ACCU is removed from the Registry
account and cancelled [Part 11, Division 3, clause
157(3)] . This will ensure that Kyoto
ACCUs exchanged for Kyoto units cannot be double-counted and thus
preserves the environmental integrity of the scheme.

9.69
There is a time limit on requests for exchange of Kyoto ACCUs for
assigned amount units, removal units or emission reduction units.
Requests may only be made before 1 July 2013 [Part 11, Division 3, clause
157(1)(b)] .

9.70
This is because the Australian government must be able to ensure
that it has sufficient Kyoto units in its registry account to match
its emissions over the first Kyoto commitment period (2008-12). Any
transfers of Australia’s Kyoto units held in Commonwealth
Registry accounts to private entities will affect this balance.
Australia must have sufficient time to reconcile its Kyoto accounts
before the end of the Kyoto ‘true-up’ period.

9.71
Kyoto units can be transferred from an account in the Australian
Registry to a foreign registry, referred to as an outgoing
international transfer [Part 11, Division 3, clause
154] . A transfer is only possible
where permitted by Regulations made under clause 155 of this bill
[Part 11, Division 3, clause
155] . Chapter 3 of the Explanatory
Memorandum for the Registry bill contains a detailed explanation of
the requirements for international transfers of Kyoto units and
non-Kyoto eligible emissions units from Australia.

Joint Implementation

9.72
Rules for the approval of Joint Implementation (JI) projects will
be the responsibility of Australia’s National Authority for
the Clean Development Mechanism (CDM) and JI. The National
Authority for the CDM and JI is already in existence, although its
role is currently limited to the approval of Australian
entities’ participation in CDM and JI projects abroad.
Following the implementation of this Act, the National Authority
for the CDM and JI will also approve scheme projects under the
‘Track 1’ JI procedure under the Kyoto Rules.

9.73
The intention is that scheme projects will be eligible for
determination as a JI Track 1 project, subject to any additional
requirements imposed by the Kyoto rules and necessary checks in
line with existing requirements for approval of Australian
entities’ participation in JI projects abroad. For example,
proponents would need to provide documentary evidence of approval
of the project from another Annex I Party before determination as a
JI project could be finalised, a prerequisite for issuance of
emission reduction units.

9.74
Once a project has been approved as an Australian-hosted
JI project, a proponent could request that Kyoto ACCUs,
assigned amount units or removal units be converted into emission
reduction units [Part 11, Division 3, clause
157(1)(b)(iii)] (and also see clause
38 of the Registry bill).

9.75
The specific process for exchanging Kyoto ACCUs, assigned amount
units or removal units will be detailed in the regulations and will
give effect to any applicable Kyoto rules. This will include
technical specifications to ensure that conversions of Kyoto units
that occur within the Australian registry comply with the data
exchange standards required by the international transaction
log.

9.76
For example:

Elsie’s
reforestation project has had an international investor lined up
since inception. Elsie has accordingly requested that her project
also be approved as a Joint Implementation project. Following
approval of the project as a scheme project, this approval is
obtained from Australia’s National Authority for the CDM and
JI shortly after the project starts. As she progressively receives
notification that the project is eligible to receive Kyoto ACCUs
throughout the projects life, Elsie lodges a request to convert
these to emission reduction units, and immediately sells the
emission reduction units to her investor as per their initial
contract.

Peter’s
landfill emissions avoidance project has received Kyoto ACCUs which
he has since exchanged for assigned amount units. He then finds an
overseas buyer who is interested in the project but wants emission
reduction units for compliance with their country’s emissions
trading scheme. Peter applies to have his project approved as a
Joint Implementation project, receives this approval, requests
conversion of his assigned amount units to emission reduction
units, and sells these to his international
buyer.

Voluntary Cancellation of Australian carbon
credit units

9.77
ACCUs may be voluntarily cancelled. This can be achieved
either through the holder of ACCUs requesting that the
Administrator cancel the units under Part 14 of the bill or through
the voluntary automatic unit cancellation regime.

Voluntary cancellation on
request

9.78
A registered holder of ACCUs may request the Administrator to
cancel one or more units. Part 14 of the bill provides for the
voluntary cancellation of ACCUs. Part 6 of the
Australian National Registry of
Emission Units Bill 2011 (Registry bill) provides for
the voluntary cancellation of Kyoto units and non-Kyoto
international emissions units. This implements the
Government’s policy that voluntary cancellation allows
individuals and organisations to contribute to stronger national
climate change mitigation by reducing the supply of eligible
emissions units.

9.79
The process for applying to cancel ACCUs under the bill is
identical to the process for applying to cancel Kyoto units and
non-Kyoto international emission units under the Registry
bill. For units that may be subject to voluntary
cancellation, the registered holder of the emissions units
transmits an electronic notice to the Administrator requesting the
Administrator to cancel the units. The notice must specify the
units to be cancelled and the person’s relevant Registry
account(s) [Part 14, clause 173(1) and
(2)] .

9.80
The action to be taken by the Authority varies depending on the
type of unit.

9.81
If the request relates to an ACCU, then the ACCU is cancelled and
removed from the person’s registry account. If the unit
is a Kyoto ACCU, the Minister must direct the Administrator to
transfer a Kyoto unit from the Commonwealth holding account to a
voluntary cancellation account before the end of the ‘true-up
period’ for the relevant Kyoto commitment period [Part 14, clause
173(3)] . The ‘true-up
period’ is the period following each Kyoto commitment period
during which Kyoto units from the relevant commitment period can be
transferred and acquired for the purposes of meeting Annex 1
countries’ emissions reduction targets.

9.82
By cancelling a Kyoto unit within the relevant commitment period,
the Government will ensure that voluntary cancellation of Kyoto
ACCUs leads to additional global abatement.

9.83
The Administrator must publish information about the number of
voluntarily cancelled ACCUs on its website, including the name of
the person who held the units and the total number of ACCUs that
have been cancelled [Part 12, Division 3, clause
163] .

9.84
This allows private entities to cancel Kyoto units, which means
they cannot be used by Australia or another Kyoto Party for the
purposes of meeting their emission reduction targets ensuring
additional global abatement.

9.85
If the request relates to a non-Kyoto ACCU, there is no need for a
corresponding reduction in Kyoto units from the Commonwealth
holding account. This is because there is nothing that needs
to be done to ensure that non-Kyoto abatement is not counted
towards Australia’s Kyoto target - this is already a
feature of the Kyoto rules.

9.86
Removing the entry for the non-Kyoto ACCU from the person’s
account will ensure that the non-Kyoto ACCU cannot be transferred
or re-used.

9.87
Request to cancel Kyoto units or non-Kyoto international emissions
units are handled under the Registry bill.

Voluntary automatic
cancellation

9.88
Some project proponents may sell the potential carbon storage
associated with their project as a way of funding the project.
Under this business model, activities such as tree planting are
used to offset the impacts of polluting activities such as driving
a car.

9.89
Such projects may be included in the scheme but the project
proponent is expected to apply for voluntary automatic cancellation
of their ACCUs when they apply for an eligible project declaration.
Automatic cancellation of credits will prevent double crediting of
abatement that has already been sold and used. If a project is
subject to voluntary automatic cancellation, any ACCUs issued for a
project will be immediately cancelled and removed from the project
proponent’s account [Part 2, Division 3, clause
19] .

9.90
The project eligibility declaration would note that the project is
subject to automatic voluntary cancellation [Part 3, Division 2, clause
23(4)] . This would be recorded on the
register of offset projects, allowing customers to check that the
projects that they have funded have been properly included in the
scheme.

9.91
If the credit is a Kyoto credit, the Administrator will cancel a
Kyoto unit from the Commonwealth’s holding account
[Part 2, Division 3, clause
19(2)(c)(i)-(ii)] . This is to ensure
that the abatement is not counted towards Australia’s Kyoto
Protocol account.

9.92
Each cancellation must be recorded in the registry [Part 2, Division 3, clause
19(3)] .

9.93
For example:

Greenfoot Pty Ltd
helps individuals and organisations to offset the impacts of
polluting activities such as driving a car by planting native
forests.

Greenfoot wants to
include their native forests in the scheme so that they will be
subject to the scheme’s integrity measures, particularly the
permanence obligations. Importantly, Greenfoot customers want
their abatement to be additional to the Kyoto
target.

Greenfoot applies
for an eligible project declaration and for automatic voluntary
cancellation for the project. The Administrator records the
automatic voluntary cancellation status on the Register of Offsets
Projects.

When units are
issued, the Administrator cancels the units and removes the entry
for the ACCUs from Greenfoot’s Registry account, and as the
units are Kyoto ACCUs, the Administrator also transfers a Kyoto
unit from a Commonwealth holding account to a voluntary
cancellation account.

Outline of chapter

10.1
This chapter addresses the various mechanisms provided in the bill
related to monitoring and enforcement. These include information
gathering, record keeping, monitoring, liability of company
officers, administrative penalties, criminal and civil penalties,
enforceable undertakings and anti-avoidance provisions.

10.2
The relevant provisions are in Parts 18 to 18 and 20 to 23 of the
bill. The administrative penalty - for failure to comply with
relinquishment requirements - is set out in Part 15 of the
bill.

10.3
Reporting and auditing are also critical elements of the monitoring
and enforcement, and are covered by Chapters 7 and 8 of the
explanatory memorandum. Offences and penalties relating to the
Registry are contained in the Registry bill.

Context

10.4
Effective enforcement arrangements are vital to ensuring the
credibility of the scheme. Non-compliance with obligations could
bring the scheme into disrepute and undermine its environmental
integrity. This would have flow-on effects to its credibility for
domestic and international purchasers of Australian carbon credit
units (ACCUs) and could ultimately affect the value of credits
generated under the scheme. For these reasons, the bill provides
the Administrator with a range of monitoring and enforcement powers
and mechanisms designed to promote confidence in an evolving market
for carbon offsets.

10.5
The monitoring and enforcement provisions in the bill have been
developed in accordance with the Australian Government’s
A Guide to Framing Commonwealth
Offences, Civil Penalties and Enforcement Power, issued
in 2007.

Explanation of new law

Information gathering
powers

10.6
The bill includes information-gathering powers which will allow the
Administrator to require the provision of information, documents
and answers to questions in order to monitor general compliance or
to undertake more specific investigations into suspected breaches.
Importantly, the bill also includes constraints to ensure that
these powers are exercised in a proportionate and justifiable
way.

10.7
If the Administrator believes on reasonable grounds that a person
has information or a document that is relevant to the operation of
the Act or associated provisions, the Administrator will be able to
require, by written notice, that person to give that information or
documents, or to provide copies [Part 16, clause
185] . The person has at least 14 days
to produce the information, documents or copies [Part 16, clause
185(3)] .

10.8
The phrase ‘associated provisions’ is defined to
include the proposed Carbon Credits (Carbon Farming Initiative)
Regulations and specified provisions of the Criminal Code in so far as those
sections relate to the scheme [Part 1, clause 5, definition of
‘associated
provisions’] .

10.9
This is a civil penalty provision, as are the ancillary
contraventions. General provisions relating to civil penalties,
including the pecuniary penalties, are included in Part 21 of the
bill.

10.10
The Administrator may inspect and copy the documents that the
person was required to produce, and retain a copy of documents
produced [Part 16, clause
187] . A person is entitled to
reasonable compensation if they have been required to provide
copies [Part 16, clause
186].

10.11
The Administrator may retain documents produced for as long as is
necessary [Part 16, clause
188(1)] . However, the Administrator
will supply a certified copy of the documents to the person
otherwise entitled to possession [Part 16, clause
188(2)] .

10.12
A person is not excused from giving information or producing a
document following notice from the Administrator on the grounds
that it might incriminate them or expose them to a penalty
[Part 16, clause
189(1)] . However, the information
given or document produced, the giving of the information or
document and any information, document, or thing obtained as a
consequence is not admissible in evidence against an individual in
the following circumstances:

â¢
civil proceedings for the recovery of other than administrative
penalties and late payment penalties in respect of failure to
surrender or relinquish units;

â¢
criminal proceedings, unless the proceedings are for an offence
relating to the provision of false or misleading information or
documents when the Administrator has asked for them [Part 16, clause
189(2)] .

10.13
The treatment of self-incrimination is addressed in more detail
below, under ‘Power of Inspectors’.

Record-keeping
requirements

10.14
Records must be kept by various scheme participants to support the
information which they provide under the scheme. This will enable
the Administrator and, where relevant, inspectors and auditors, to
check the accuracy and completeness of information provided to the
Administrator, for example, information provided in applications
leading to the issuing of Australian carbon credit units
(ACCUs).

10.15
The capacity to audit offsets reporting is essential to monitoring
compliance and ensuring the integrity of the scheme.

10.16
The regulations may require a person to make a record of relevant
information, and retain that record for 7 years after making the
record [Part 17, Division 2, clause
191(1) and (2)] . The regulations can
also require project proponents to retain records of information
used to prepare an offsets report. These records must be retained
for 7 years after the report was given to the Administrator
[Part 17, Division 2, clause
192(2)] . Project proponents must also
comply with any record-keeping requirements that are specified in
the applicable methodology determination [Part 17, Division 2, clause 193(1) and
(2)] .

10.17
The 7-year retention periods for records are consistent with
obligations under 22(3) of the National Greenhouse and Energy Reporting Act
2007.

Monitoring powers

10.19
Part 18 provides for the appointment of inspectors who may enter
premises to determine whether the Act or associated provisions have
been complied with or to substantiate information provided under
the Act or associated provisions.

10.20
The usual duty of an inspector is expected to be to examine
documentation, for example, records held by entities which are
liable under the scheme.

10.21
The powers of an inspector and the rights and responsibilities of
the occupier of the premises are described below.

Appointment of
inspectors

10.22
The Administrator may appoint a member of the Department’s
staff or the Australian Federal Police as an inspector [Part 18, Division 2, clause
196(1)] . The staff member may be at
the Senior Executive Service (SES) level, or acting SES level, or
at the Executive Level 1 or 2 (or equivalent officer performing
these functions). It is envisaged that inspectors will require
detailed knowledge of the scheme and the ability to identify and
interpret technical data, such as data used in a project’s
abatement calculations. For this reason, it is necessary to allow
for Executive Level 1 and 2 staff with detailed technical knowledge
and skills to be appointed as inspectors, as well as SES level
staff.

10.23
A person appointed as an inspector must have suitable
qualifications and experience, and comply with any direction of the
Administrator [Part 18, Division 2, clause
196(2) and (3)] .

10.24
Such a direction is not of a legislative character and is therefore
not within the meaning of section 5 of the Legislative Instruments Act 2003 [Part 18, Division 2, clause
196(4)] . This provision is included to
indicate that an exemption from the Legislative Instruments Act 2003 is not sought or
required.

10.25
The inspector must carry an identity card issued by the
Administrator [Part 18, Division 2, clause
197(1)] . The form of the card is to be
prescribed. Failure to return the card is a strict liability
offence [Part 18, Division 2, clause
197(2)] . The Guide to Framing Commonwealth Offences, Civil
Penalties and Enforcement Powers were considered in
drafting this provision. Three criteria for strict liability
offences listed at page 25 of the guide were fulfilled:

â¢
the offence is not punishable by imprisonment and is punishable by
a penalty of less than 60 penalty units for an individual;

â¢
the punishment of offences not involving fault is likely to
significantly enhance the effectiveness of the enforcement regime
in deterring offences; and

â¢
there are legitimate reasons for penalising persons lacking
‘fault’ because potential offenders will be placed on
notice to guard against the possibility of any contravention.

Power of inspectors

10.26
An inspector can enter premises and exercise monitoring powers to
determine whether this Act or the associated provisions have been
complied with or to substantiate information provided under the Act
or associated provisions. The inspector can only enter
premises with the consent of the occupier or under a monitoring
warrant [Part 18, Division 3, clause
198] .

10.27
An inspector’s monitoring powers include the power to search
the premises and to inspect any document on the premises
[Part 18, Division 3, clause
199] . While on the premises, an
inspector may operate electronic equipment to see whether it
contains relevant information [Part 18, Division 3, clause
199] . The inspector may also secure
items for up to 24 hours if entry to the premises was under a
monitoring warrant, while a warrant authorising the seizure of
those items is being sought. This period can be extended by a
magistrate [Part 18, Division 3, clause
199] .

10.28
Inspectors may be assisted by other persons if this is necessary
and reasonable [Part 18, Division 3, clause
200(1)] . A person assisting an
inspector may enter the premises and exercise monitoring powers in
relation to the premises, but only in accordance with a direction
given by the inspector [Part 18, Division 3, clause
200(2)] . A written direction is not of
a legislative character and is therefore not within the meaning of
section 5 of the Legislative
Instruments Act 2003 [Part 18, Division 3, clause
200(4)] . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required.

10.29
Where the inspector has entered the premises with the consent of
the occupier, he or she may ask the occupier to answer relevant
questions or produce relevant documents. When entry was under a
monitoring warrant, the inspector may require the occupier to
answer relevant questions or produce relevant documents. It is an
offence not to comply with such a requirement. The maximum penalty
is 30 penalty units [Part 18, Division 3, clause
201] . The treatment of
self-incrimination in this context is addressed below.

â¢
The announcement that must be made by an inspector before entering
premises under a monitoring warrant [Part 18, Division 4, clause
204].

â¢
The need to be in possession of the warrant to execute it
[Part 18, Division 4, clause
205].

â¢
The requirement that the inspector provide a copy of the warrant to
the occupier who is present and inform him or her of the rights and
responsibilities of the occupier [Part 18, Division 4, clause
206].

10.31
The occupier is entitled to observe the execution of a monitoring
warrant, but not if he or she impedes the execution [Part 18, Division 5, clause
209] .

10.32
The occupier must provide the inspector and persons assisting the
inspector with all reasonable facilities and assistance where there
is a monitoring warrant applying to the premises. Failure to do so
is an offence. The penalty is a maximum of 30 penalty units
[Part 18, Division 5, clause
210].

Self-incrimination under clauses 189 and
202

10.33
A person is not excused from giving information or producing a
document following notice from the Administrator on the grounds
that it might incriminate them or expose them to a penalty
[Part 18, Division 3, clause
202(1)] . However, in the case of an
individual, the answer or document, the giving of the answer and
producing the document, and any information, document or thing
obtained as a consequence is not admissible in evidence in
specified circumstances [Part 18, Division 3, clause
202(2)] . The circumstances are the
same as in the self-incrimination provision in the information
gathering powers [Part 16, clause
189] .

10.34
Provisions under which a person may be required to answer questions
or to produce information or documents are a common enforcement
mechanism in Commonwealth legislation. These provisions are
appropriate when such powers will assist in the administration of
Commonwealth legislation.

10.35
Clauses 189 and 202 override an individual’s privilege
against self-incrimination, but provide an individual with immunity
such that self-incriminatory disclosures cannot be used against the
person who makes the disclosure, either directly in court (known as
‘use’ immunity) or indirectly to gather other evidence
against the person (known as ‘derivative use’ immunity)
with limited exceptions [Part 16, clause 189] [Part 18, Division 3,
clause 202] . However, the information
could be used against a third party, such as an accomplice.

10.36
The effective administration of the scheme is an issue of public
importance which could impact on the Australian community and
business. Non-compliance could undermine the scheme’s
integrity. Clauses 189 and 202 enhance the ability of the
Administrator to monitor and ensure compliance with the
scheme in a way that is consistent with the views of the
Scrutiny of Bills Committee, as well as Commonwealth legal policy
regarding the privilege against self-incrimination [Part 16, clause 189] [Part 18, Division 3,
clause 202] .

Monitoring warrants

10.37
The requirements for the issue of a monitoring warrant by a
magistrate and the content of the warrant are specified
[Part 18, Division 6, clause
211] .

10.38
The power to issue a monitoring warrant is conferred on a
magistrate in his or her personal capacity. It need not be accepted
but when it is exercised the magistrate has the same protection and
immunity as if he or she were exercising the power as a member of
the court of which the magistrate is a member [Part 18, Division 7, clause
212] .

Liability of executive officers of bodies
corporate

10.39
Where a body corporate contravenes a civil penalty provision, and
its executive officer knew (or was reckless or negligent as to
whether) the contravention would occur, the officer will be subject
to a civil penalty if he or she was in a position to influence the
conduct of the body corporate, in relation to the contravention,
but failed to take all reasonable steps to prevent it [Part 20, clause
217] .

10.41
The terms ‘reckless’ and ‘negligent’ are
explained for the purpose of this provision [Part 20, clause 217(2) and
(3)] . This is necessary because the
provision is a civil penalty provision.

10.42
The court may have regard to all relevant matters in determining
whether an executive officer failed to take all reasonable steps
[Part 20, clause
218] . These matters may include the
action (if any) the officer took to ensure that the body corporate
arranges regular professional assessments of its compliance with
civil penalty provisions. This would only be considered to the
extent that the action is relevant to the contravention. The word
‘professional’ refers to the qualifications and
experience of the person undertaking the assessment and does not
require, on every occasion, that the assessment is undertaken by a
person outside the organisation. The court may also have regard to
other specified factors including the extent to which the body
corporate implemented those recommendations and any other actions
taken by the executive officer. The word
‘professional’ refers to the qualifications and
experience of the person undertaking the assessment and does not
require, on every occasion, that the assessment is undertaken by a
person outside the organisation [Part 20, clause
218] .

10.43
Extended accessorial liability is appropriate in this context. The
aim is to ensure that compliance with obligations under the scheme
is taken seriously at a high level within liable entities.
Liability is not being imposed simply because the person is an
officeholder at the relevant time but requires a degree of blame
before a civil penalty can be imposed.

10.44
Example of liability of executive officers:

â¢
A chief executive officer is aware that his or her company was
failing to comply with its carbon maintenance obligation and was in
a position to influence this conduct, but failed to take all
reasonable steps to prevent this contravention.

Administrative penalties

Administrative penalty -
relinquishment

10.45
The relinquishment mechanism is described in chapter 6 of this
explanatory memorandum.

10.46
Failure to relinquish ACCUs as required will result in an
administrative penalty [Part 15, Division 3, clause
179] . The administrative penalty is
proportional to the shortfall in relinquishment

10.47
If the person has relinquished none of the required units, the
penalty is calculated in accordance with the formula:

10.49
The prescribed amount will be $20 for each Kyoto or non-Kyoto unit
that is not relinquished or 200% of the market value for the
relevant unit, whichever is the greater [Part 15, Division 3, clause
179(3)] . Regulations may set out a
method by which the market value will be ascertained [Part 15, Division 3, clause
179(6)] . For example, the regulations
may require the market value to be determined using prices on a
public exchange (if one emerges) which generates published data on
prices for ACCUs, or employing a qualified person to carry out a
valuation.

10.50
The administrative penalty is due and payable 30 days after the
compliance deadline [Part 15, Division 3, clause
179(4)] . From this point a late
payment penalty will accrue [Part 15, Division 3, clause
180] .

10.51
The Administrator is empowered to remit the late payment penalty in
part or in whole if it is satisfied that certain criteria are met.
For example, the Administrator may remit some or the entire penalty
where there are special circumstances [Part 15, Division 3, clause
180(2)] .

10.52
Other aspects of the relinquishment mechanism are addressed in
Chapter 6 of this explanatory memorandum

Civil penalties

Which provisions are civil penalty
provisions?

10.53
The majority of penalty provisions in the bill, including ancillary
contraventions, such as aiding a contravention, are civil penalty
provisions. The Guide to Framing
Commonwealth Offences, Civil Penalties and Enforcement
Powers describes civil penalties as follows:

“A
civil penalty provision is set out in a similar way to an offence
and is subject to proceedings in court. However, it is enforced by
civil proceedings that are subject to the procedures and rules of
evidence in civil cases. Proof is on the balance of probabilities.
A civil penalty provision only carries a financial penalty, not an
imprisonment penalty. The imposition of a civil penalty does not
constitute a criminal conviction.”

10.54
The bill contains the following list of civil penalty
provisions:

76
Offsets reports [Part 6, Division 2, clause
76]

78
Notification requirement - ceasing to be the project
proponent for an eligible offsets project otherwise than because of
death [Part 6, Division 3, clause
78]

10.55
The reason for choosing to make these civil penalty provisions is
that contraventions of these provisions do not involve conduct of
such serious moral culpability that criminal prosecution is
warranted. Further, as many recognised entities are expected to be
bodies corporate, financial disincentives provided by civil
penalties are likely to be the most useful and effective.

Civil penalty orders jurisdiction and
amount

10.56
Both the Federal Court and competent state and territory courts can
make civil penalty orders [Part 21, clause
220] .

10.57
It is for the Court to determine whether a person has contravened a
civil penalty provision and to order the person to pay a penalty
[Part 21, clause
221] .

10.58
The maximum amount of the pecuniary penalty is specified, as are
the matters which the court may have regard to in determining the
amount of the penalty [Part 21, clause 221(3), (4) and
(5)] .

10.59
The maximum amount for a civil penalty is 10,000 penalty units for
a body corporate and 2,000 penalty units for other persons
[Part 21, clause 221(4) and
(5)] . The phrase ‘penalty
unit’ is defined by reference to section 4AA of the
Crimes Act 1914 [Part 1, clause 5, definition of ‘penalty
unit’] . Currently, a penalty
unit is $110.

10.60
Substantial penalties are required to provide an adequate deterrent
against inaccurate record-keeping or reporting. Financial gains
could be made from contravention of the obligations under the
scheme. For example, the maximum penalty of 10,000 penalty units
(or $1,100,000) is equivalent to 44,000 ACCUs at $25 per unit,
which may be a small proportion of the units issued to a recognised
entity under the scheme over a project’s lifetime.

10.61
Matters which the court may have regard to in determining the
amount of the penalty include the nature and extent of the
contravention, any previous contraventions, and, in the case of a
body corporate, whether it has exercised due diligence to avoid the
contravention [Part 21, clause
221(3)] . These factors reflect the
approach indicated in A Guide to
Framing Commonwealth Offences, Civil Penalties and Enforcement
Powers . They follow the Australian Law Reform Commission Report 95:
Principled Regulation: Federal Civil and Administrative Penalties
in Australia .

Evidential burden

10.62
Clause 230 relates to a mistake of fact. It provides that a person
is not liable to have a civil penalty order made against him or her
for a contravention of a civil penalty provision where:

â¢
the person considered whether or not facts existed; and

â¢
was under a mistaken but reasonable belief about those facts;
and

â¢
had those facts existed, the conduct would not have constituted a
contravention of the civil penalty provision.

10.63
A person who wishes to rely on the relevant subsections bears an
evidential burden in relation to that matter [Part 21, clause
230] . This approach is justified where
a matter is peculiarly within the defendant’s knowledge and
not available to the prosecution.

Continuing
contraventions

10.64
Where a contravention occurs, the bill contains disincentives
against the contravention continuing. A person who contravenes
specified civil penalty provisions which involve, for example, a
requirement to do something within a particular period, commits a
separate contravention on each of the days on which it fails to
comply [Part 21, clause
232(2)] .

10.65
Generally, the penalty is limited to 5 per cent (each day) of the
penalty for the initial contravention. However, in the case of a
contravention of a requirement by the Administrator to provide
information or documents [Part 16, clause
185(2)] the penalty is up to 10
percent (each day) of the penalty for the initial contravention,
recognising that the person is always provided with adequate time
to meet the requirement [Part 21, clause
232(3)] .

10.66
Other examples of continuing contravention provisions are those
dealing with compliance with the record-keeping requirements for
methodology requirements [Part 17, Division 2, clause
193(2)] and a failure to comply with a
requirement to notify where natural disturbances have caused a
significant reversal of carbon dioxide removal or sequestration by
a project [Part 6, Division 3, clause
81(2)] .

Other provisions about civil
penalties

10.67
While the Crown in each of its capacities is bound by the Act, the
Crown is not liable to a pecuniary penalty. This protection does
not apply to authorities of the Crown or to administrative
penalties or late payment penalties [Part 1, clause
8] .

10.68
The bill provides a power in clause 183(4) to allow the
Consolidated Revenue Fund to be appropriated so that the
Commonwealth can make interest payments to people who make
overpayments on administrative penalties [Part 15, Division 3, clause
183(4)] . An administrative penalty is
payable where a person fails to relinquish ACCUs by the compliance
deadline [Part 15, Division 3, clause
179] and where a late payment penalty
is payable when the administrative penalty is not paid within the
time specified for payment [Part 15, Division 3, clause
180] . This appropriation power is
limited in the sense that the administrative penalty will, at most,
apply only to persons who are required to relinquish units but fail
to do so.

10.69
Other aspects of the civil penalty regime are also addressed in
Part 21 of the bill. Of particular significance are:

â¢
only the Administrator may apply for a civil penalty order
[Part 21, clause
222]; and

â¢
a requirement that the rules of evidence and procedure for civil
matters be applied when hearing proceedings for a civil penalty
order [Part 21, clause
225].

10.70
Other provisions address the grouping of proceedings [Part 21, clause
223] , a 6-year time limit on
initiating civil penalty proceedings [Part 21, clause
224] and the relationship between
civil and criminal proceedings initiated with respect to the
conduct which is substantially the same [Part 21, clause 226 to
229] .

10.71
Special provision is made to remove the requirement to prove the
state of mind, including intention, knowledge, recklessness or
negligence, of a person who does not comply with a requirement
[Part 21, clause
231], for example, to give the
Administrator particular information [Part 16, clause
185(4)] . The reason for this provision
is that it is reasonable to expect those subject to the provision
will take steps to guard against any inadvertent contravention.

Criminal provisions

10.72
As indicated above, the provisions in the bill which are criminal
offences are only those involving such culpability that criminal
penalties are justified.

Which provisions are criminal
provisions

197
Identity cards [Part 18, Division 2, clause
197]

201
Inspector may ask questions or require questions to be answered and
seek production of documents [Part 18, Division 3, clause
201]

10.73
The above generally relate to behaviour which involves dishonest or
fraudulent conduct, or could involve considerable harm to society,
the environment, the scheme or its participants.

10.74
Project proponents are likely to have far more information about
their projects than the Administrator, particularly if they have
failed to report. It is therefore essential for the effective
operations of the Administrator that the information gathering and
monitoring powers are adequate and that the requirements of
inspectors are complied with [Part 18, Division 3, clause 201] [Part 18,
Division 5, clause 210] . The maximum
penalty for contravention of clause 201 (which relates to a failure
to answer questions or produce documents to an inspector) is 30
penalty units. The maximum penalty for contravention of clause 210
(which relates to assistance to an inspector under a monitoring
warrant) is also 30 penalty units.

10.75
Ancillary contraventions, such as aiding a contravention, are
addressed by the Criminal
Code .

10.76
As indicated above, the Crown in each of its capacities will be
bound by the Act, but the Crown is not liable to be prosecuted for
an offence. This protection does not apply to an authority of the
Crown [Part 1, clause
8] .

Court orders to relinquish
units

10.77
In addition to the specific criminal provisions listed above,
conduct in relation to the scheme may constitute contravention of
provisions of the Criminal
Code . For example, conviction for an offence against
specified provisions of the Criminal Code is one of the
preconditions for a court order to relinquish units [Part 13, clause
171] . The offences specified include
making a statement in information provided to the Administrator or
in an application for the issue of units, knowing that it is false.
An example is providing false identity documents in an application
for a Registry account.

10.78
Following conviction for an offence against certain specified
provisions of the Criminal
Code , the court may order that the offender should
relinquish a specified number of ACCUs, Kyoto ACCUs or non-Kyoto
ACCUs [Part 13, clause
171] . Before making such an order, the
court must be satisfied that the issue of any or all of the units
was attributable to the offence. The applicable provisions in the
Criminal Code include
section 136.1 which relates to giving false or misleading
information to a Commonwealth entity.

10.79
A person is required to comply with such an order even if he or she
is not the registered holder of any ACCUs [Part 13, clause
171(5)] .

10.80
The procedure for relinquishment is addressed in Part 15 of the
bill and chapter 6 of this explanatory memorandum.

10.81
For example:

Treehandler Ltd is
a recognised offsets entity under the scheme. It is the
project proponent for projects which sequester carbon through
reforestation. Treehandler applies to the Administrator for a
certificate of entitlement for the issue of ACCUs, and knowingly
includes false information in the application regarding the
quantity of carbon dioxide sequestered through its activities. As a
result, the Administrator issues to Treehandler a certificate and
2,000 more emissions units than Treehandler is entitled
to.

The fraudulent
conduct is discovered and Treehandler is found guilty of the
offence. Treehandler is exposed to the criminal penalty under
section 136.1 (false or misleading statements in applications) of
the Criminal Code .
The court also orders the company to relinquish 2,000 emissions
units. The Administrator cancels the recognition of the company
under clause 65(1)(a)(iii) of the bill.

Treehandler then
fails to relinquish any of the units by the specified time, and is
further exposed to an administrative penalty under clause 179(2) of
the bill. The penalty is $20 for each Kyoto or non-Kyoto unit that
is not relinquished or 200% of the market value for the relevant
unit, whichever is the greater. If, for example, $20 is the greater
value, then Treehandler is liable to pay $40,000 to the
Commonwealth

Enforceable undertakings

10.82
Enforceable undertakings are useful mechanisms for the
Administrator to help ensure compliance without necessarily taking
court action. This power could be used, for example, when an
offsets entity has been found to have errors in its reports and
calculations of emissions factors. The entity may be willing to
enter into an enforceable undertaking specifying the processes
which it would implement so that it can produce compliant reports
in the future.

10.84
Such undertakings are published on the Administrator’s
website [Part 23, clause
237(5)] .

10.85
The undertakings are enforceable by the Administrator in the
Federal Court. The Court has a wide discretion as to the orders it
can make. These include an order directing the person to comply
with the undertaking [Part 23, clause
238] .

10.86
Enforceable undertakings are useful mechanisms for the
Administrator to help ensure compliance without necessarily taking
court action. This power could be used, for example, when an
offsets entity has been found to have errors in its reports and
calculations of emissions factors. The entity may be willing to
enter into an enforceable undertaking specifying the processes
which it would implement so that it can produce adequate reports in
the future.

Polly has received
ACCUs in respect of her approved reforestation project. As her
project has been specified under Regulations as a kind of project
that does not need an audit report to accompany her application.
However, a later report identifies that due to poor record keeping,
it is not clear whether the application she submitted for the
Certificate of Entitlement was correct in all aspects. Polly enters
into an enforceable undertaking to voluntarily surrender the ACCUs
she has received. This will maintain the environmental integrity of
the scheme without the Administrator having to take action to prove
that Polly’s application was misleading (which may be
difficult to prove, given the quality of the
records).

Anti-avoidance provisions

10.87
Entering into schemes aimed at ensuring that a body corporate or
trust will, for example, be unable to pay an existing or future
liability to pay an administrative penalty is a criminal offence
[Part 22, clause 234 and
235] . These provisions are comparable
to those which apply in relation to various taxes. They are aimed
at artificial schemes involving, for instance, deliberate
‘asset-stripping’ to render a company unable to acquit
its liabilities or to prevent recovery of penalty-related debts by
the Administrator.

10.88
The maximum penalties specified in these provisions are 2,000
penalty units or 7 years’ imprisonment, or both. The maximum
penalties are justified by the considerable financial incentive to
avoid payment of liabilities under the scheme.

10.89
In general, the penalties are designed to ensure there is an
adequate penalty for the worst possible case. The deliberate
evasion of the administrative penalty following failure to
relinquish ACCUs would have serious consequences for integrity of
the scheme. There would be a strong financial incentive for an
unscrupulous proponent to enter into avoidance arrangements. If
scheme participants resorted to these tactics, it would mean that
the number of ACCUs issued for projects would eventually be higher
than the amount of greenhouse gas emissions abated. This could
bring the scheme into disrepute and damage the ACCU market, to the
detriment of other participants.

10.90
For example, a proponent might receive 400,000 ACCUs for a forestry
project covering 1,000 hectares (assuming 400 tonnes of carbon
dioxide equivalent per hectare are stored by the project). If the
proponent was required to relinquish all ACCUs received (for
example, because they cleared the forest), and they failed to
relinquish, the resulting administrative penalty could be $8
million (at $20 per ACCU) or higher. The possibility of
imprisonment, as well as a pecuniary penalty, is needed to deter
such conduct.

Procedure for relinquishment of
units

10.91
The bill makes provision for the relinquishment of ACCUs where:

â¢
units were issued as a result of the person providing false or
misleading information [Part 7, Division 2, clause
88] (see below);

â¢
a court order based upon fraudulent conduct is made [Part 13, clause
171] (see above);

â¢
the project proponent for a sequestration project deliberately
reverses the carbon store or does not re-establish the carbon store
following a natural disturbance [Part 7, Division 3, clause 90 and
91] (see permanence discussion in
chapter 6).

Relinquishment where there has been false or
misleading information

10.92
If a person has received ACCUs for a project because they gave
false or misleading information to the Administrator, they would
have to hand back the ACCUs [Part 7, Division 2, clause
88] . This applies for both
sequestration offsets projects and emissions avoidance
projects.

10.93
This applies if the information given by the person to the
Administrator was false or misleading in a material particular
[Part 7, Division 2, clause
88(1)(d)] and was:

â¢
given in an application or in connection with an application under
the bill or the regulations;

â¢
contained in an offsets report; or

â¢
contained in a notification under Part 6 of this bill [Part 7, Division 2, clause
88(1)(c)] .

10.94
For the ACCUs to be required to be relinquished, the issue of the
ACCUs must have been directly or indirectly attributable to the
false or misleading information that the person provided
[Part 7, Division 2, clause
88(1)(e)] .

10.95
The Administrator may require the person to hand back a specified
number of Kyoto or non-Kyoto ACCUs [Part 7, Division 2, clause 88(2) and
(4)] . The number of Kyoto ACCUs which
would need to be handed back would not be greater than the number
of Kyoto ACCUs which were issued to the person because of the false
or misleading information [Part 7, Division 2, clause
88(3)] . Similarly, the number of
non-Kyoto ACCUs which would need to be handed back would not be
greater than the number of non-Kyoto ACCUs which were issued to the
person because of the false or misleading information [Part 7, Division 2, clause
88(5)] .

10.96
The project proponent has 90 days to comply with the requirement
[Part 7, Division 2, clause
88(6)] .

Procedure for
relinquishment

10.97
ACCUs can be electronically relinquished by a registered holder
through giving notice to the Administrator [Part 15, Division 2, clause
175(1)] . The notice must specify the
units being relinquished, the reason why the units are being
relinquished, and the account number of the Registry account where
the units are held [Part 15, Division 2, clause
175(2)] .

10.98
A relinquishment notice can be deemed to be given where a person is
subject to a relinquishment requirement, and at the same time the
Administrator is required to issue ACCUs to the person [Part 15, Division 2, clause
176] . This clause allows the
Administrator to deduct the number of ACCUs that must be
relinquished from the number of ACCUs that will be issued. It
allows the Administrator to recover ACCUs subject to a
relinquishment requirement and encourages compliance with the
scheme.

10.99
Where Kyoto ACCUs are being relinquished, either voluntarily or as
a requirement of the bill, a person has the option to transfer to
the Commonwealth an equal number of substitute units instead of
relinquishing the Kyoto ACCUs [Part 15, Division 2, clause 177(1),
(2)] . The substitute units that can be
transferred are:

10.100
If a person chooses to transfer substitute units instead of
transferring Kyoto ACCUs, they must provide the Administrator with
an electronic notice of this [Part 15, Division 2, clause
177(2)] and specify the substitute
units being transferred and the reason the relinquishment
requirement applied [Part 15, Division 2, clause
177(3)] .

10.101
Where a person is relinquishing non-Kyoto ACCUs, either voluntarily
or as a requirement of the Act, a person has the option to transfer
to the Commonwealth an equal number of substitute units instead of
relinquishing the non-Kyoto ACCUs [Part 15, Division 2, clause 178(1),
(2)] . The substitute units that can be
transferred, and the procedure for notifying the Administrator is
the same as for transfer of Kyoto ACCUs instead of relinquishment
described above [Part 15, Division 2, clause
178(2), (3), (6)] .

10.102
Failure to relinquish ACCUs or sufficient ACCUs, will lead to an
administrative penalty, see above [Part 15, Division 3, clause
179] . These administrative penalties
are a debt due to the Commonwealth [Part 15, Division 3, clause
181] , and may be set-off against any
amount payable to the person by the Commonwealth [Part 15, Division 3, clause
182] .

10.103
Any overpayments of Administrative penalties must be refunded by
the Commonwealth and there is provision for interest to be paid by
the Commonwealth on those overpayments [Part 15, Division 3, clause
183] .

Outline of chapter

11.1
This chapter addresses provisions in Part 24 of the bill, which
provide for merits review of decisions.

11.2
Other relevant provisions are contained in Parts 2, 3 and 9 of the
bill.

Context

11.3
The Government has committed to sound appeals processes for
decisions under the scheme, including judicial review pursuant to
the Administrative Decisions
(Judicial Review) Act 1977 and merits review. The bill
consistently provides for merits review by the Administrative
Appeals Tribunal of administrative decisions that affect scheme
participants, financially or otherwise.

Explanation of new law

Merits review

Decisions which are subject to merits
review

11.4
There is an extensive list of decisions by the Administrator which
are subject to merits review [Part 24, Division 2, clause
240] . A decision by the DOIC to refuse
to endorse a methodology proposal because withheld information
could substantially prejudice public submission is also reviewable
[Part 9, Division 2, clause 112(9) and 120(9)],
[Part 24, Division 2, clause
245A] .

11.5
The objective of this approach is to ensure that decisions are
correct and preferable according to the facts on which the decision
was based, that all persons affected by a decision are treated
fairly, and to encourage the quality, consistency, openness and
accountability in decisions made by the Administrator and the
DOIC.

11.6
The list does not include those decisions where the Administrator
has no discretion, including for example, a decision by the
Administrator to issue units to the holder of a certificate of
entitlement which is automatic in character and not appropriate to
merits review [Part 2, Division 2, clause
11] .

11.7
The list also does not include decisions which are of a legislative
character, for example, where they relate to the making of a
methodology determination by the Minister [Part 9, Division 2, clause
106(1)] , or where they relate to the
making of regulations, for example, any requirements relating to
project eligibility [Part 3, Division 2, clause
27(4)(l)] . The list also does not
include decisions which are intermediate steps towards decisions
which are of a legislative character, for example, the refusal of
the DOIC to endorse a proposal for a methodology determination
[Part 9, Division 2, clause
112(2)(b)] or advice by the DOIC to
include an item on the positive list [Part 3, Division 6, clause
41(2)] .

11.8
These exceptions to merits review are consistent with Government
policy on administrative review and the Commonwealth Administrative
Review Council publication What
Decisions should be Subject to Merit Review?

11.9
The bill provides for two avenues of merit review: internal
reconsideration by the Administrator and external review by the
Administrative Appeals Tribunal.

Internal
reconsideration

11.10
Where the decision is made by a delegate of the Administrator, the
person affected by the decision may first apply for internal
reconsideration by the Administrator [Part 24, Division 2, clause
241]. This arrangement provides an
opportunity for the affected person to put their case directly to
the Administrator, through a process that will generally be less
costly and time consuming than external review.

11.11
An application for internal reconsideration must be made within 28
days after being informed of the decision or, if the Administrator
extends the deadline, within the extended deadline [Part 24, Division 2, clause
241(4)] .

11.12
The Administrator must make a decision on the application within 90
days of receiving it [Part 24, Division 2, clause
243] .

11.13
That decision may be to affirm, vary or revoke the decision and a
written statement of reasons must be provided to the applicant
within 28 days after making the reconsidered decision [Part 24, Division 2, clause
242] .

Application to the Administrative Appeals
Tribunal

11.14
If the person affected is not satisfied with the outcome of
internal reconsideration of a decision, he or she may apply to the
Administrative Appeals Tribunal to review the decision. If the
original decision was not made by a delegate of the Administrator,
or was made by the Administrator, the person affected may apply
directly to the Tribunal without going through internal
reconsideration [Part 24, Division 2, clause
244]

Stay of proceedings

11.15
The court is empowered to stay proceedings for recovery of an
administrative penalty or late payment penalty following failure to
relinquish a particular number of Australian carbon credit units,
while the decision to require relinquishment is subject to internal
reconsideration or to an application for review by the
Administrative Appeals Tribunal [Part 24, Division 2, clause
245] .

11.16
In practice, the Administrator is unlikely to pursue recovery of
debts associated with non-relinquishment while a relinquishment
notice is under review. However, this provision provides greater
certainty for scheme participants by clarifying their ability to
access the courts to halt recovery proceedings

Outline of chapter

12.1
This chapter addresses the establishment and functions of the
Domestic Offsets Integrity Committee (DOIC). The specific
requirements applying to the DOIC when it considers draft
methodologies are covered in Chapter 5 of the explanatory
memorandum on Methodology Determinations.

12.2
This chapter also sets out the appointment, functions and
other matters relating to the Carbon Credits Administrator (the
Administrator).

12.3
The relevant provisions are contained in Parts 9, 25, 26 and 27 of
the bill.

Context

12.4
The value of Australian carbon credit units (ACCUs) issued under
the scheme will depend on their environmental credibility, in
particular confidence by purchasers and the public that each ACCU
represents genuine emissions reductions equivalent to no less than
one tonne of carbon dioxide. To provide additional confidence in
the integrity of offsets methodologies and the value of ensuing
ACCUs, an independent expert panel, the DOIC will assess draft
methodologies and advise the Minister on whether they should be
approved.

12.5
An interim DOIC was established in October 2010 to commence the
work of assessing methodologies and enable a prompt start of the
scheme. The bill provides for this work and any methodologies
endorsed by the DOI C to be transferred to the statutory scheme
under transitional provisions.

12.6
The Government’s intention for the Carbon Credits
Administrator is to establish a regulator similar to the Greenhouse
and Energy Data Officer under the National Greenhouse and Energy Reporting Act
2007 . This Administrator will be required to make
independent decisions that are based on the scheme’s
objectives and requirements set out in the bill.

12.8
The DOIC will also advise the Minister and the Secretary of the
responsible Department about matters that relate to offsets
projects and are referred by the Minister or the Secretary
[Part 26, Division 1, clause
255] .

12.9
The DOIC may also do anything incidental or conducive to the
performance of its specified functions [Part 26, Division 1, clause
255(d)] .

Membership of the
DOIC

12.10
The DOIC must have five to six members, including the Chair
[Part 26, Division 2, clause
256] .

12.11
The Minister must be satisfied that anyone appointed to the DOIC
has substantial experience or knowledge in at least one field
relevant to the functions of the DOIC [Part 26, Division 2, clause
257(2)] . As the DOIC’s
overarching function is to ensure the environmental integrity of
methodologies used under the scheme, it is envisaged that a person
with strong general environmental credentials will be appointed to
the DOIC.

12.12
The Minister must ensure that one DOIC member is an SES officer or
holds an Executive Level 2 position in the Department [Part 26, Division 2, clause
257(5)] . The main purpose of including
a departmental officer on the DOIC is to ensure that proposed
methodologies are consistent with methods used in Australia’s
National Greenhouse Accounts, which are compiled by the
Department.

12.13
The Minister must also ensure that one DOIC member is an officer of
the Commonwealth Scientific and Industrial Research Organisation
(CSIRO), nominated by the Organisation’s Chief Executive
[Part 26, Division 2, clause
257(6)] . The CSIRO officer will assist
the DOIC in its assessment of methodologies by accessing the
considerable scientific research capabilities and information held
by CSIRO.

12.14
Members of the DOIC hold office on a part time basis [Part 26, Division 2, clause
257(7)] .

12.15
All members are to be appointed for a period of up to five years
[Part 26, Division 2, clause
258] .

12.16
The Minister can appoint an acting Chair or acting member of the
DOIC when there is a vacancy in the office of the Chair or in the
office of a member; or when the Chair or a member is absent from
duty or absent from Australia [Part 1, clause 6] [Part 26, Division 2, clause
259] .

12.17
The Minister can terminate the appointment of a DOIC member, but
only on narrow grounds, including bankruptcy, misbehaviour,
physical or mental incapacity, unsatisfactory performance, or
repeated absence from meetings of the DOIC [Part 26, Division 2, clause
267] .

12.18
The bill is not prescriptive as to how the DOIC should make
decisions. Subject to some minimum procedural requirements which
may be prescribed in regulations, the DOIC can regulate proceedings
at its meetings as it sees appropriate. The regulations could
include matters relating to the convening of meetings, the
constitution of a quorum and the manner of decision-making
[Part 26, Division 2, clause
260(1)] .

12.19
The bill contains a number of provisions aimed at ensuring that
DOIC members do not have interests that conflict with the proper
performance of their duties. In particular, the bill
establishes:

â¢
a general requirement that members must give written notice to the
Minister of all interests that conflict, or could conflict, with
the proper performance of their functions [Part 26, Division 2, clause
261] ;

â¢
a specific requirement that members disclose to a meeting of the
DOIC a conflict of interest in any matter before the DOIC, and
absent themselves from any deliberation or decision with respect to
that matter unless the DOIC determines otherwise [Part 26, Division 2, clause
262] ; and

â¢
a prohibition on any member from engaging in any paid employment
that conflicts, or may conflict, with the proper performance of his
or her duties [Part 26, Division 2, clause
263] .

12.20
A failure to comply with the above requirements may provide grounds
for the termination of a member’s appointment [Part 26, Division 2, clause
267(2)] .

12.21
Members of the DOIC are to be paid at a rate determined by the
Remuneration Tribunal, the independent tribunal established under
the Remuneration Tribunal Act
1973 to handle the remuneration of key Commonwealth
offices. Where no determination has been made by the Tribunal,
members are paid at the rate prescribed in regulations
[ Part 26, Division 2, clause
264] .

12.22
The Minister may grant leave of absence to the Chair of the DOIC on
terms and conditions that the Minister determines. The Chair of the
Committee may grant leave of absence to a DOIC member on terms and
conditions decided by the Chair [Part 26, Division 2, clause
265] .

12.23
A Committee member may resign by giving the Minister a written
resignation [Part 26, Division 2, clause
266] .

12.24
In the event that any terms and conditions of employment need to be
specified and are not already dealt with in the bill, the Minister
may make a determination on those matters [Part 26, Division 2, clause
268] .

12.25
The responsible Department will provide secretariat functions for
the DOIC, and may be assisted by any other Commonwealth Department,
agency or authority, where their services are made available
[Part 26, Division 2, clause
269] .

Establishment and functions of the Carbon
Credits Administrator

Carbon Credits
Administrator

12.26
A Carbon Credits Administrator (the Administrator) will be created
to manage the scheme [Part 25, clause
246] .

Functions of the
Administrator

12.27
The functions of the Administrator are as contained in the main
bill, the Australian National
Registry of Emissions Units Bill 2011 , or any other law
of the Commonwealth, such as the Freedom of Information Act 1982 . The
Administrator has a broad discretion to undertake any activities
that will assist him or her perform these functions [Part 25, clause
247] .

Appointment of the
Administrator

12.28
The Administrator will be a Senior Executive Service employee of
the responsible Department appointed by the Secretary by written
instrument [Part 25, clause
246(2)] .

12.29
The instrument of appointment is not of a legislative character and
is therefore not within the meaning of section 5 of the
Legislative Instruments
Act 2003 [Part 25, clause
246(3)] . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required

Acting Administrator

12.30
The Secretary may appoint a person to act as Administrator when
there is a vacancy, or the Administrator is absent or overseas or
is otherwise unable to perform his or her duties [Part 25, clause
248(1)] . The Acting Administrator must
meet the same eligibility requirements as the Administrator
[Part 25, clause
248(2)] . Should there be a problem
with the appointment process, for example, because the
Administrator returns from leave while there is an Acting
Administrator, the actions of the Acting Administrator are valid
[Part 25, clause
248(3)] .

Delegation by the
Administrator

12.31
The Administrator has the power to delegate some or all of his or
her duties to a substantive or acting Senior Executive Service
(SES) or Executive Level 2 employee in the Department. A delegate
must comply with any written directions of the Administrator
[Part 25, clause
249] . Because the Administrator is
only a single SES officer, it is necessary for them to be able to
delegate to a lower level officer. As the bill prescribes most
powers of the Administrator, the Administrators function involves
very little exercise of discretion and therefore such a delegation
is appropriate. However the power to make, vary or revoke a
legislative instrument cannot be delegated by the Administrator
[Part 25, clause
249(3)] .

Persons assisting the
Administrator

12.32
The Administrator may be assisted by Australian Public System
employees in the Department made available for the purpose by the
Secretary. The Administrator may also be assisted by officers and
employees of other Commonwealth or state and territory agencies and
authorities [Part 25, clause 250 and
251] .

Consultants

12.33
The Administrator may engage suitably qualified consultants on
behalf of the Commonwealth and set the terms and conditions of
their engagement [Part 25, clause
252] .

Minister may give directions to the
Administrator

12.34
The Minister may provide written directions to the Administrator of
a general nature in relation to performance of his or her duties.
The Administrator must comply with the Minister’s direction
[Part 25, clause
253] .

12.35
This provision does not empower the Minister to direct the
Administrator on any particular matters or cases, such as the
declaration of an eligible offsets project, the issuing of ACCUs to
a project proponent, or imposing a carbon maintenance obligation.
Administrative decisions such as these must be made independently
by the Administrator or their delegate.

Outline of chapter

13.1
This chapter describes information which will be collected under
the scheme and be made publicly available on the
Administrator’s website or a public Register of Offsets
Projects (the Register), the protection of confidential
information, and disclosure of protected information to entities
other than the Administrator for legitimate purposes.

13.2
The relevant provisions are contained in Parts 12 and 27 of the
bill.

Context

13.3
Publication of information is important to promote transparency and
public confidence in the scheme, as well as provide factual
information to the public for purposes such as land conveyances.
Some of the provisions are required in order to meet specific
obligations that Australia has under the Kyoto Protocol.

13.4
The scheme seeks to protect the commercially sensitive information
provided to the Administrator by ensuring that any disclosure is
related to the purpose for which the information was collected and
is carried out within specified constraints.

Explanation of new law

Publication of
Information

Register of offsets
projects

13.6
The Register will assist to promote scheme transparency on many
aspects of projects approved under the scheme. This will assist the
public and carbon markets to make informed judgements as to the
integrity of ACCUs issued under the scheme. It will also allow
potential buyers to locate potential sources of ACCUs and to
identify projects with attributes that may be of interest to the
buyer, such as its benefits for biodiversity conservation.

13.7
The purpose of the Register is also to assist with land
conveyancing. People wanting to buy land that has a
sequestration project will need to know the exact location of the
project, when it was established, what kind of project it is, how
many units have been issued and whether any units have been
relinquished. This will allow them to factor into the sale price of
the land the potential costs (including opportunity costs) and
benefits of the project.

Information on the
Register

13.8
The Register must set out the following information about each
project:

â¢
The name of the project, the project proponent and a description of
the project [Part 12, Division 5, clause
168(1)(a), (c) and (f)] . This
identifying information is needed to distinguish between
projects.

â¢
The location of the project and the project area [Part 12, Division 5, clause 168(1)(b),
(c)] . This information is for
conveyancing purposes and may be of general public interest.
For example, regional bodies and state governments may have an
interest in the monitoring the number and type of projects, as well
as the amount of abatement they generate.

â¢
The name of the applicable methodology determination used by the
project [Part 12, Division 5, clause
168(1)(g)] .

â¢
Whether the project declaration has been made conditional on
regulatory approvals being obtained prior to the end of the first
crediting period [Part 12, Division 5, clause
168(1)(h)] .

â¢
Whether the project is consistent with the relevant regional
natural resource management plan [Part 12, Division 5, clause
168(1)(i)] . This provision is to
create an incentive for projects to be consistent with regional
plans. For reputational reasons, buyers are less likely to want
Australian carbon credit units (ACCUs) from projects that are known
to be inconsistent with regional plans.

â¢
Whether the project is subject to the voluntary automatic
cancellation regime [Part 12, Division 5, clause
168(1)(j)] . This is so that consumers
who have purchased services such as tree-planting services can
readily identify that while the activity they have financed has
been included in the scheme, it will not be double counted, and the
proponent will not receive both ACCUs and the payment for the
tree-planting service.

â¢
If any Kyoto or non-Kyoto ACCUs have been issued for a project, the
total number of ACCUs issued, the financial year in which they have
been issued, and the person to whom they have been issued must be
included on the Register [Part 12, Division 5, clause 168(1)(k) and
(l)] .

â¢
Whether any ACCUs have been relinquished and whether the project is
subject to a carbon maintenance obligation [Part 12, Division 5, clause 168(1)(m) and
(n)] . This information is to assist
with conveyancing. This information will tell someone who is
interested in buying the land whether more ACCUs are likely to be
issued for the area, how many ACCUs they would have to hand back if
they wanted to remove carbon stores and whether the land is subject
to a carbon maintenance obligation.

â¢
If Kyoto ACCUs have been issued, how many (if any) have been
exchanged for different Kyoto units [Part 12, Division 5, clause
168(1)(k)] . The Kyoto rules require
information relating to Kyoto units to be published.

â¢
Whether the project is a joint implementation project [Part 12, Division 5, clause
168(1)(d)] . The Kyoto rules require
this information to be published. If the project is a joint
implementation project, other information that is specified in the
regulations will also be published [Part 12, Division 5, clause
168(1)(p)] .

â¢
Information about environmental or community benefits of a project
[Part 12, Division 5, clause
168(1)(o)(i)] . This will assist buyers
who have a preference, and are willing to pay a premium, for ACCUs
issued for projects that generate particular co-benefits.

â¢
Any other information about the project that the Administrator
considers relevant [Part 12, Division 5, clause
168(1)(q)] .

13.9
Information about community and social benefits must meet the
requirements specified in the regulations [Part 12, Division 5, clause
168(1)(o)(iii)] . It is intended
that the regulations will specify an environmental and social
co-benefits index, to provide a credible, low cost way for
proponents to rate, market and obtain a premium for co-benefits,
for example, protecting biodiversity.

13.10
The Register must also identify areas of land that were formerly
project areas which are subject to carbon maintenance obligations,
and set out the total number of ACCUs issued in relation to the
project [Part 12, Division 5, clause
168(3)] . This information will tell
someone who is interested in buying the land whether they would
have continuing obligations to maintain carbon stores or a positive
obligation to restore carbon stores to the benchmark sequestration
level.

13.11
Project proponents can request that information about the project
area not be included on the Register [Part 12, Division 5, clause
169(1)(a)] . This will allow the
location of projects to be kept confidential, for example, where
publication would pose security risks.

13.12
A request to withhold information about a project area must be in
writing and in an approved form [Part 12, Division 5, clause
169(2)] . The Administrator would
approve the request if it was satisfied that publishing the
information would substantially prejudice a proponent’s
commercial interests and that this prejudice outweighs the public
interest in publishing the information [Part 12, Division 5, clause
169(1)(b)] . There would be a
significant public interest in publishing the project area for a
sequestration offsets project because anyone wanting to take an
interest in the project land would want to know the location of the
project.

13.13
The Administrator will take all reasonable steps to make a decision
about the request within 30 days and will advise the project
proponent in writing if the request is refused [Part 12, Division 5, clause 169(3) and
(4)] . This provision is not intended
to result in the invalidity of a decision made after that time but
imposes a duty to take all reasonable steps to make the decision
within that timeframe.

Information about relinquishment
requirements

13.14
The Administrator must publish on their website information about
relinquishment requirements, including the name of the person and
the details of the relinquishment requirement [Part 12, Division 4, clause 164(1) and
(2)] .

13.15
This information is of relevance to the carbon market, which has a
strong interest in the integrity of the scheme and whether
particular abatement providers are complying with scheme
obligations. Providing the public and potential carbon market
buyers with information about relinquishment is likely to promote
scheme compliance.

13.16
The Administrator will also indicate on their website
whether:

â¢
the person has relinquished ACCUs to meet a relinquishment
requirement and the number of ACCUs relinquished [Part 12, Division 4, clause
166] ;

â¢
whether the relinquishment requirement is being reconsidered by the
Administrator or by the Administrative Appeals Tribunal, and the
outcome of these reviews [Part 12, Division 4, clause
164(3)] ; or

â¢
whether a late penalty payment has been issued with respect to a
relinquishment requirement and the details of the unpaid penalty
amount [Part 12, Division 4, clause
165] .

13.17
These provisions are to ensure that public information about
relinquishment is complete, and presents a fair and accurate
picture of efforts by project proponents to comply with scheme
obligations.

13.18
This information will also enable the Administrator to be made
accountable for the quality of its decisions making and
decision-making processes. It will show how many relinquishment
notices the Administrator has been asked to reconsider, whether its
decisions in relation to relinquishment are the subject of
administrative appeal and whether the tribunal has upheld or
amended the Administrator’s
decisions.

Information about
units

13.19
The Administrator is required to publish and keep up-to-date
information about the number and characteristics of the ACCUs it
has issued. This is to provide regular and accurate information to
the market about the supply of different kinds of ACCUs and
facilitate price discovery. Timely market information can help to
make changes in the price of ACCUs more gradual and predictable.
Publishing information about the characteristics of ACCUs is also
intended to inform retail investors and to enable streamlining of
product disclosure requirements under the Corporations Act 2001 . As this
information will be published and kept up to date, it will not be
necessary for the Commonwealth to issue a product disclosure
statement or prospectus in relation to ACCUs.

13.20
Specifically, the administrator must publish on its website:

â¢
the name of each person that receives ACCUs and the total number of
credits issued, as soon as practical after the ACCUs are issued
[Part 12, Division 2, clause
160];

â¢
the name of each person that voluntarily cancels ACCUs and the
total number of credits cancelled as soon as practical after carbon
credits are issued [Part 12, Division 2, clause
160];

â¢
a quarterly report setting out the total number of credits issued
over the quarter [Part 12, Division 2, clause
161] ; and

Secrecy

Primary disclosure
offences

13.21
The bill seeks to make it an offence for a person who is (or has
been) a public official to disclose or use ‘protected
information’ unless one of a number of exceptions
apply. ‘Protected information’ is, in broad
terms, information obtained in an official capacity. The
penalty for this offence is up to two years’ imprisonment or
120 penalty units (which currently equates to $15,600), or both
[Part 27, clause
270(1)] . This penalty is the same as
applies to a similar offence in secrecy provisions in section 23 of
the National Greenhouse and
Energy Reporting Act 2007.

Exceptions to primary disclosure
offences

13.22
In broad terms, the exceptions - that is, the circumstances
in which ‘protected information’ can be disclosed or
used - are:

â¢
disclosure or use for the purposes of this Act or a legislative
instrument under this Act [Part 27, clause
271];

â¢
disclosure to the Minister [Part 27, clause
272];

â¢
disclosure to the Secretary of the Department (or a person
authorised by the Secretary), where the disclosure is to advise the
Minister or facilitate the monitoring of Australia’s
compliance with international climate change obligations
[Part 27, clause
273];

â¢
disclosure by the Administrator or the Chair of the DOIC to a Royal
Commission [Part 27, clause
275];

â¢
disclosure to specified agencies, bodies and persons where the
Administrator is satisfied that the information will assist those
agencies in carrying out their functions [Part 27, clause
276] . These include:

-
the Greenhouse and Energy Data Officer

-
Australian Carbon Trust Limited (which will require information
about ACCUs issued under the scheme in order to administer the
Carbon Neutral Program under the National Carbon Offset Standard
Carbon)

â¢
disclosure to certain operators of financial markets and clearing
and settlement facilities, where that body is specified in
regulations and where the Administrator is satisfied that the
information will assist the body in carrying out its functions,
including monitoring and compliance [Part 27, clause
277] ;

â¢
disclosure with the consent of the affected person [Part 27, clause
278];

â¢
disclosure necessary to prevent or lessen a serious and imminent
threat to the life or health of an individual [Part 27, clause
279];

â¢
disclosure where the material is already publicly available
[Part 27, clause
280];

â¢
disclosure of summaries of protected information or statistics
derived from protected information, where the release of the
summaries or statistics is not likely to enable the identification
of a person [Part 27, clause
281] ;

â¢
disclosure by the Administrator or the Chair of the DOIC to law
enforcement agencies [Part 27, clause 282 and
283];

â¢
disclosure to a person undertaking a review of the Act [Part 27, clause
284]; and

13.23
To assist methodology applicants and the government in continued
methodology development and in improving accounting techniques,
some protected information can be disclosed or used when 7 years
have passed since the information was provided to the
Administrator. This applies to information relating to offsets
projects or methodologies which was provided when the application
for a project declaration or a methodology determination was made.
The Administrator may disclose this information if the disclosure
or use is to facilitate the development of methodology
determinations [Part 27, clause 274(1) and
(2)] . However, this provision for
disclosure does not apply to personal information within the
meaning of the Privacy Act
1988 [Part 27, clause
274(3)] .

13.24
A document made for the purpose of disclosure to a Royal Commission
is not of a legislative character and is therefore not within the
meaning of section 5 of the Legislative Instruments Act 2003 [Part 27, clause
275(4)] . The provision is included to
indicate that an exemption from the Legislative Instruments Act is
not sought or required.

Evidential burden

13.25
In any prosecution, the defendant will have the evidential burden
with respect to the exceptions outlined above [Part 27, clause 274(1) and
(2)] . This is justified because in
many cases it is peculiarly within the defendant’s knowledge
as to which of the exceptions, if any, apply. The effect is that
the defendant must adduce or point to evidence that suggests a
reasonable possibility that one of the exceptions applies. Once
this is done, the prosecution must refute this beyond reasonable
doubt to obtain a conviction (see section 13.3 of the
Criminal Code ).

Secondary disclosure
offences

13.26
The bill also contains measures to ensure that once
protected information has been disclosed, further disclosure is
prohibited unless

13.27
The listed purposes are related to the purpose for which the
information was collected and include taking disciplinary or other
action, to enforce the criminal law, to enforce a law imposing a
pecuniary penalty and to protect public revenue [Part 27, clause 276(4) and (5)] [Part 27, clause
277(4) and (5)] [Part 27, clause 282(4) and (5)] [Part 27, clause
283(4) and (5)].

13.28
Where an offence of secondary disclosure is asserted, the defendant
will have an evidential burden to show that the information was
disclosed for a relevant purpose. This is appropriate as the
purpose of disclosure will be within the defendant’s
knowledge and this will assist with the protection of
information.

13.30
A person commits an offence if they engage in conduct in breach of
a condition. This offence is punishable by a penalty of up to two
years’ imprisonment or 120 penalty units (currently $13,200),
or both [Part 27, clause 276(7)] [Part
27, clause 277(7)] [Part 27, clause 282(7)] [Part 27, clause
283(7)] .

13.31
Conditions made under these sections are not of a
legislative character and is therefore not within the meaning of
section 5 of the Legislative
Instruments Act 2003 [Part 27, clause 276(8)] [Part 27, clause 277(8)]
[Part 27, clause 282(8)] [Part 27, clause
283(8)] . These provisions is included
to indicate that an exemption from the Legislative Instruments Act 2003 is
not sought or required.

Outline of chapter

14.1
This chapter addresses the miscellaneous provisions (other than
transitional provisions) which are not addressed in other chapters
of the explanatory memorandum.

Context

14.2
The miscellaneous provisions are principally contained in Part 28
of the bill. This chapter also includes some discussion of guidance
provisions in Part 1 (Preliminary) of the bill and the simplified
outlines.

Explanation of new law

Simplified outline

14.3
To assist readers, the bill includes a simplified outline of the
scheme [Part 1, clause
4] .

14.4
Each Part of the bill also contains a simplified outline of that
Part’s contents.

Commencement

14.5
The substantive provisions of the bill will commence on a day to be
proclaimed. If any of the provisions do not commence within six
months of the Royal Assent, then they will commence the day after
the six months expires [Part 1, clause
2] .

14.6
This will allow sufficient time to prepare for implementation of
the scheme. Preparation will include appointment of the
Administrator, establishment or finalisation of scheme processes
and IT systems, recruitment of staff, and the provision of
assistance for potential applicants.

General functions of the
Administrator

14.7
As well as the specific functions of the Administrator provided
through the bill, the Administrator has various general
functions.

14.8
The Administrator will monitor and promote compliance, conduct and
co-ordinate education programs and advise and assist persons (and
their agents) in relation to their compliance obligations
[Part 28, clause 286(a), (b), (c), (e), (f) and
(g)] . This is expected to be a
significant part of the Administrator’s work in the period
leading to the commencement of the scheme and the initial years of
the bill’s operation.

14.9
The Administrator will also be empowered to collect, analyse,
interpret and disseminate statistical information relating to the
operation of the Act and associated provisions [Part 28, clause
286(i)] .

14.10
This is expected to add to the body of information available to
persons wishing to purchase abatement and other people who are
interested in how the scheme is operating. Other sources of
information are the public information released under Part 12 of
the bill.

14.11
The Administrator will liaise with regulatory and other relevant
bodies about co-operative arrangements for matters relating to the
bill or offsetting carbon emissions more generally [Part 28, clause
286(h)] . This liaison may be with
domestic or overseas bodies, and is intended to facilitate
international linking of the CFI with overseas schemes, and to
enable the Administrator to learn from experience with other
registries.

14.12
The Administrator will also advise the Minister on matters relating
to the Act [Part 28, clause
286(d)] .

Computerised
decision-making

14.13
The Administrator will have the capacity to use computer programs
for the purposes of decision making [Part 28, clause
287] . For example, the Registry may
embed decisions rules based on the provisions of the bill, so that
Registry functions can be automated and transactions requested by
account holders can be carried out efficiently and rapidly.

Electronic notices

14.14
Many actions in relation to the Registry may be done by electronic
means. An electronic notice transmitted to the Administrator is
defined in the bill [Part 1, clause 5, definition of
‘electronic notice transmitted to the Administrator’]
[Part 1, clause 7] . Regulations may
prescribe requirements in relation to the security and authenticity
of notices transmitted to the Administrator including
identification checking processes and encryption of those processes
[Part 1, clause
5(2)] . This is to give the
Administrator the power to determine the level of encryption and
identification checking required for different actions in order to
maintain the integrity of the Registry.

Requests for further
information

14.15
Several clauses in the bill make provision for the Administrator to
refuse to consider an application if the Administrator requires
additional information in relation to the application and the
applicant does not comply. The applications that may be
affected by such a refusal are:

14.16
The Administrator may only request information concerning an
application where that information is relevant to that application,
and it must exercise this power in a reasonable way [Part 28, clause
288] . This would prevent the
Administrator form making unreasonable requests for additional
information following receipt of any type of these
applications.

14.17
Similarly, the DOIC may only request information where it is
relevant to the matter to which the application relates and must
exercise the power reasonably [Part 28, clause
289] , in relation to:

â¢
a determination of an offsets methodology [Part 9, Division 2, clause 108 and
119]; and

Agency

14.18
The bill confirms that a project proponent may appoint an agent to
take any actions under the bill including making an application,
giving a report or providing information, without limiting the
principles of agency [Part 28, clause
290] . This makes clear that project
proponents may engage external expertise to assist with fulfilling
scheme requirements. However, a project proponent must still meet
any eligibility requirements and be responsible for meeting scheme
obligations.

Commonwealth

Delegation by the
Minister

14.19
The Minister will be able to delegate any or all of his or her
functions or power under the bill or regulations to the Secretary
or a senior executive service (SES) employee, or acting SES
employee of the Department. This power does not extend to making,
varying or revoking legislative instruments. The delegate must
comply with any direction of the Minister [Part 28, clause
291] .

14.20
The Minister has various powers under the Bill. They include
the power to direct the Administrator to transfer a Kyoto unit from
a Commonwealth holding account to a voluntary cancellation account
for the purposes of voluntary automatic unit cancellation regime
[Part 2, Division 3, clause
19(2)(c)(i)] or to require advice from
the DOIC regarding the positive list for additionality purposes
[Part 3, Division 6, clause
41(2)].

Delegation by the
Secretary

14.21
The Secretary may also delegate his or her functions to a senior
executive service (SES) employee, or acting SES employee of the
Department. The delegate must comply with any direction of the
Secretary [Part 28, clause
293]. The Secretary has powers to
appoint the Administrator and make APS employee available for the
Administrator [Part 25, clause 246 and
251] .

State and Territories

Delegation by a State Minister or a Territory
Minister

14.22
The Minister of a state or territory may delegate any functions or
powers under the bill to a person who is an officer or employee of
the state or territory and who holds or performs duties that is
equivalent to a position occupied by a senior executive service
employee in the Australian Public Service [Part 28, clause
292] . For instance this could be used
to delegate the power to consent to reforestation projects on Crown
land.

Concurrent operation of state and territory
law

14.23
The bill is not intended to exclude or limit the operation of a law
of a state or territory that is capable of operating concurrently
with it [Part 28, clause
294] .

Arrangements with the states and
territories

14.24
The Minister is empowered to make arrangements with a Minister of a
state, the Australian Capital Territory, Northern Territory or
Norfolk Island with respect to the administration of the bill. A
copy of each instrument by which such an arrangement is made is to
be published in the Commonwealth Gazette [Part 28, clause
296(9)]. Such an instrument is not of
a legislative character and is therefore not within the meaning of
section 5 of the Legislative
Instruments Act 2003 [Part 28, clause
296(10)] . This provisions is included
to indicate that an exemption from the Legislative Instruments Act 2003 is
not sought or required.

14.25
Arrangements with another state or territory could include
arrangements for magistrates to exercise power in relation to the
granting of monitoring warrants [Part 18, Division 3, clause 198,
199] and for the exercise of powers by
land registration officials [Part 3, Division 5, clause 39 and
40] .

Legal professional
privilege

14.26
The doctrine of legal professional privilege has been described by
the High Court in Daniels
Corporation International Pty Ltd v Australian Competition and
Consumer Commission (2002) 213 CLR 543 as follows:

‘It is now
settled that legal professional privilege is a rule of substantive
law which may be availed of by a person to resist the giving of
information or the production of documents which would reveal
communications between a client and his or her lawyer made for the
dominant purpose of giving or obtaining legal advice or the
provision of legal services, including representation in legal
proceedings.’

14.27
The bill includes an explicit provision indicating that it will not
affect the law relating to legal professional privilege
[Part 28, clause
295]

Liability for damages

14.28
The bill specifies that certain persons are not liable to an action
for damages for acts done in good faith (or omissions) in the
performance of their functions under the bill or the associated
provisions. The persons include the Minister, the Minister’s
delegates, the Administrator and members of the DOIC and auditors
appointed by the Administrator to perform other audits [Part 28, clause
297] . The type of provision is common
in Commonwealth legislation and enables persons with statutory
functions to perform their functions without fear of legal action
being taken against them, as long as they perform those functions
in good faith.

Executive power

14.29
The bill does not limit the executive power of the Commonwealth
[Part 28, clause
298] .

14.30
This is to make it clear that the bill does not, for example, limit
the Commonwealth’s executive power to take various actions to
meet Australia’s obligations under the Kyoto Protocol.

14.31
The bill extends to the external Territories, including Christmas
Island and Norfolk Island, so that carbon offsets opportunities can
be pursued in those places [Part 1, clause
9].

Notional payments by the
Commonwealth

14.32
The Crown may be liable for an administrative penalty or late
payment penalty under the Act [Part 1, clause
8] .

14.33
To accommodate this, by ensuring such amounts are notionally
payable by the Commonwealth, provision is made for the Minister for
Finance to give written directions relating to transfers of amounts
within or between accounts operated by the Commonwealth
[Part 28, clause
299] .

Compensation for acquisition of
property

14.34
The bill ensures that if the scheme would result in an acquisition
of property from a person other than on just terms, the
Commonwealth is liable to pay a reasonable amount of compensation.
Provision is included for the institution of proceedings to recover
such compensation if agreement has not been reached. The terms
‘acquisition of property’ and ‘just terms’
have the same meaning as in section 51(xxxi) of the Constitution
[Part 28, clause
300].

Native Title Act and Racial Discrimination Act
not affected

14.35
The approach to native title is intended to be consistent with the
Native Title Act 1993
and the Racial Discrimination
Act 1975 . To reflect this intention, and to ensure that
native title continues to be protected, the bill contains
statements that the operation of the Native Title Act 1993 and
Racial Discrimination Act
1975 are not affected [Part 28, clause 301 and
302]. See above chapter
4.

Introduced animal emissions avoidance
projects

14.36
The bill links the qualification of introduced animal emissions
avoidance projects (and resulting eligibility for the benefits
under the bill) to the meeting of Australia's obligations under art
8(h) of the Convention on
Biodiversity 1993 in reliance on the external affairs
power (section 51(xxix) of the Constitution ) [Part 28, clause
303] .

Review of Bill

14.37
Given the evolving nature of offsets schemes, formal
reviews of the scheme are one way of ensuring that it is meeting
integrity principles, including that abatement is additional,
sequestration projects are meeting permanence requirements, and
that projects are not resulting in unintended outcomes.

14.38
The Minister must ensure that the first review of the scheme is
completed and a report tabled in Parliament by 31 December 2014.
The Minister must ensure that subsequent reviews are conducted and
reports tabled within 3 years of the previous review. Reviews must
include public consultation [Part 28, clause
306] .

Regulations

14.39
The bill includes a general regulation making power [Part 28, clause
307] .

14.40
The regulations may apply, adopt, or incorporate with or without
modification, a matter contained in another instrument as it exists
from time to time, despite subsection 14(2) of the Legislative Instruments Act 2003.
For example, the regulations could refer to a standard published by
the International Organization for Standardisation, as in force
from time to time. The instrument referred to must be published on
the Administrator’s website unless this would infringe
copyright [Part 28, clause
304] .

14.41
In addition, the regulations may confer a power to make a decision
of an administrative character on the Administrator [Part 28, clause
305] .